The SEC’s Division of Corporation Finance issued a statement on Tuesday relating to liquid staking or ‘protocol staking.’

“It is the division’s view that liquid staking activities in connection with Protocol Staking do not involve the offer and sale of securities,” within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934, it stated.

The statement continued to note that liquid staking participants “do not need to register with the Commission transactions under the Securities Act.”

The SEC’s Division of Corporation Finance issued a staff statement on certain liquid staking activities to provide greater clarity on the application of federal securities laws to crypto assets. https://t.co/w4plTWmAJv

Staking Providers Not Entrepreneurial

Liquid staking allows crypto holders to deposit their assets with a provider or in a DeFi protocol and receive the equivalent in staking tokens.

These tokens represent ownership of the deposited crypto, plus any staking rewards, while allowing holders to maintain liquidity without withdrawing from staking. They can also be used as collateral or in other cryptocurrency applications.

Ethereum liquid staking platform Lido is one of the largest, issuing stETH tokens for staked ETH. It currently has almost 8.9 million ETH staked worth around $32 billion.

The SEC defined staking tokens as ‘receipts’ for the assets staked. “A Staking Receipt Token is not a receipt for a security because the deposited Covered Crypto Asset is not a security,” it stated.

Using the Howey test for investment contracts, the SEC determined that liquid staking providers only perform administrative functions rather than “entrepreneurial or managerial” efforts. They act as agents facilitating staking rather than making investment decisions, and don’t guarantee returns.

However, if staking providers engage in more complex entrepreneurial activities beyond basic staking services, securities laws may still apply.

Last Hurdle for Staking ETFs

ETF expert Nate Geraci opined that this is the “last hurdle in order for the SEC to approve staking in spot ETH ETFs.”

He added that the reason was that liquid staking tokens will be used to help manage liquidity in spot Ether ETFs, “something that was a concern for the SEC.”

SEC says certain liquid staking tokens are NOT securities

Think last hurdle in order for SEC to approve staking in spot eth ETFs.

The reason?

Liquid staking tokens will be used to help manage liquidity w/in spot eth ETFs, something that was a concern for SEC. pic.twitter.com/tKJbEoQVNp

BlackRock filed for a staked Ether ETF in July, which, if approved, would enable it to offer additional yields to investors.

Crypto analysts are largely in agreement that if staking Ether ETFs are given the green light, it could send ETH into new price discovery and to a new all-time high.