Full text of the US SEC: Some Staking in PoS networks are not securities and do not require registration

Source: U.S. SEC Division of Corporation Finance; Translated by: AIMan@金色财经

Introduction

In order to more clearly clarify the applicability of federal securities laws to crypto assets, [1] the U.S. Department of Corporation Finance (DFI) is issuing an opinion on certain activities referred to as “staking” in networks that use proof-of-stake (PoS) as a consensus mechanism (“PoS networks”)[2]. Specifically, this statement targets the staking of crypto assets that are intrinsically associated with the programmatic operation of public, permissionless networks, which are used to participate in the consensus mechanism of such networks and/or are obtained by participating in the consensus mechanism of such networks, or are used to maintain the technical operation and security of such networks and/or are obtained by maintaining the technical operation and security of such networks. Throughout this statement, we refer to these crypto assets as “Covered Crypto Assets”[3] and their staking on PoS networks as “protocol staking.”

Protocol staking

Networks rely on cryptography and economic mechanism design to reduce reliance on designated trusted intermediaries to validate network transactions and provide settlement assurances to users. The operation of each network is governed by an underlying software protocol, which consists of computer code that programmatically enforces certain network rules, technical requirements, and reward distributions. Each protocol includes a “consensus mechanism,” which is a method that enables a distributed network of unrelated computers (called “nodes”) that maintain a peer-to-peer network to reach agreement on the “state” of the network (or the authoritative record of network address ownership balances, transactions, smart contract code, and other data). Public, permissionless networks allow users to participate in the operation of the network, including validating new transactions according to the network’s consensus mechanism.

PoS is a consensus mechanism for proving that node operators participating in a network (“node operators”) have contributed value to the network, which can, in certain circumstances, be forfeited if they behave dishonestly. [4] In a PoS network, node operators must stake the network’s covered crypto assets in order to be programmatically selected by the network’s underlying software protocol to validate new blocks and update the network’s state. Once selected, node operators act as “validators.” In exchange for providing validation services, validators receive two types of “rewards”: (1) newly minted (or created) covered crypto assets, which are programmatically allocated to validators by the network according to its underlying software protocol; and (2) a percentage of transaction fees paid by parties seeking to add their transactions to the network in covered crypto assets. [5]

In a PoS network, node operators must commit or “stake” the covered crypto assets to be eligible to validate and receive rewards, which is typically accomplished through smart contracts. A smart contract is a self-executing program that automatically performs the actions required in network transactions. During the staking period, the protected crypto assets are “locked” and cannot be transferred for a period of time, subject to the terms of the applicable agreement. [6] Validators do not possess or control the staked protected crypto assets, meaning that ownership and control of the protected crypto assets do not change during the staking period.

The underlying software protocol of each PoS network contains the rules for running and maintaining the PoS network, including the method by which validators are selected among node operators. Some protocols provide for random selection of validators, while others use specific criteria to select validators, such as the amount of protected crypto assets staked by node operators. Protocols may also contain rules designed to discourage behavior that compromises the security and integrity of the network, such as validating invalid blocks or double signing (when a validator attempts to add the same transaction to the network multiple times, effectively spending the same crypto asset multiple times). [7]

The rewards for protocol staking provide participants with a financial incentive to use their covered crypto assets to maintain the security of the PoS network and ensure its continued operation. An increase in the amount of covered crypto assets staked can improve the security of a PoS network and reduce the risk that a malicious party could control a large portion of the crypto assets. Once a malicious party has control of these assets, they can manipulate the PoS network by influencing transaction validation and potentially tampering with the network’s transaction history.

Holders of covered crypto assets can earn rewards by acting as node operators and staking their covered crypto assets. When staking on their own (or alone), the holder always retains ownership and control of their covered crypto assets and cryptographic private keys.

Alternatively, covered crypto asset owners can participate in the PoS network validation process without running their own nodes by self-custodial staking directly with a third party. The covered crypto asset owner delegates their validation rights to a third-party node operator. [8] When using a third-party node operator, the covered crypto asset owner receives a portion of the rewards, and the provider also receives a portion of the rewards for their services in validating transactions. When self-custodial staking directly with a third party, the covered crypto asset owner retains ownership and control of their crypto assets and their private keys.

In addition to self-staking (or individual) and self-custodial staking directly with a third party, a third form of protocol staking is so-called “custodial” staking, where a third party (“custodian”) holds the owner’s crypto assets and assists in staking on the owner’s behalf. When the owner deposits their crypto assets with the custodian, the custodian holds the deposited crypto assets in a digital “wallet” controlled by it. The custodian stakes the crypto assets on the owner’s behalf to receive an agreed share of rewards, either by using nodes operated by the custodian or through a third-party node operator of its choice. During the staking process, the deposited crypto assets are always controlled by the custodian, and the crypto asset owner retains ownership of the crypto assets held by the custodian. [9] In addition, the deposited crypto assets: (1) may not be used by the custodian for operational or general business purposes; (2) may not be lent, pledged, or re-pledged for any reason; and (3) are held in a manner that is not subject to third-party claims. To this end, the custodian may not use the deposited crypto assets for leverage, trading, speculation, or discretionary activities.

SEC’s View on Scheme Pledge Activities

The SEC’s Division of Corporation Finance believes that “scheme pledge activities” (defined below) related to scheme pledges do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). [10] Therefore, the Division believes that participants in scheme pledge activities are not required to register transactions with the SEC under the Securities Act or to qualify for the registration exemptions provided under the Securities Act with respect to these scheme pledge activities.

Protocol Staking Activities Covered by This Statement

The SEC’s Division of Corporation Finance’s view covers the following protocol staking activities and transactions (“Protocol Staking Activities” and each a “Protocol Staking Activity”):

• Staking crypto assets on PoS networks;

• Activities performed by third parties involved in the protocol staking process—including, but not limited to, third-party node operators, validators, custodians, delegates, and nominees (“Service Providers”)—including their roles in earning and distributing rewards; and

• Provision of Ancillary Services (defined below).

This statement covers only protocol staking activities related to the following types of protocol staking.

• Self-staking (or sole) staking refers to a node operator staking crypto assets that it owns and controls using its own resources. A node operator may consist of one or more individuals who jointly operate a node and stake its crypto assets.

• Self-custodial staking directly with a third party, which involves a node operator being granted validation rights to a crypto-asset owner under the terms of the protocol. Reward payments can flow directly to the crypto-asset owner from the PoS network or indirectly to them through the node operator.

• A custodial arrangement, where a custodian stakes on behalf of the owner of the crypto-asset it holds. For example, a crypto-asset trading platform that holds deposited crypto-assets for its customers may stake such crypto-assets on behalf of its customers on a PoS network that allows for customer delegation and with the customer's consent. The custodian will stake the deposited crypto-assets using either its own nodes or a third-party node operator of its choice. In the latter case, this choice is the custodian's sole decision in the staking process.

Discussion of Protocol Staking Activities

Securities Act Section 2(a)(1) and Exchange Act Section 3(a)(10) define "security" by listing various financial instruments, including "stocks," "notes," and "bonds," respectively. Because cryptoassets do not constitute any of the financial instruments expressly enumerated in the definition of “security,” we analyze certain transactions involving cryptoassets in the context of the agreement to pledge under the “investment contract” test set forth in SEC v. W. J. Howey & Co. [11] The “Howey test” is used to analyze arrangements or instruments not listed in these statutory provisions based on their “economic reality.” [12] In assessing the economic reality of a transaction, the test is whether there is an investment of funds in a common enterprise that is premised on a reasonable expectation that profits will be derived from the entrepreneurial or managerial efforts of others. [13] Since Howey, federal courts have consistently interpreted that the “other efforts” requirement in Howey is satisfied when “the efforts performed by persons other than the investor are undeniably significant efforts and are key management efforts that affect the success or failure of the enterprise.” [14] Federal courts have also noted that administrative and managerial activities are not managerial or entrepreneurial efforts that satisfy the “other efforts” standard in Howey. [15]

Self-(or Sole) Staking

Node operators do not engage in self-(or sole) staking based on a reasonable expectation of profit from the entrepreneurial or managerial efforts of others. Rather, node operators contribute their own resources and stake their own crypto assets to secure the PoS network and facilitate its operation by validating new blocks, thereby making them eligible to receive rewards under the PoS network’s underlying software protocol. To receive rewards, node operators’ activities must comply with the rules of the protocol. By staking their own crypto assets and participating in protocol staking, node operators are merely engaging in an administrative or managerial activity to secure the PoS network and facilitate its operation. Node operators’ expectations of rewards do not derive from the managerial or managerial efforts of any third party on which the PoS network’s success depends. Rather, the protocol’s expected economic incentives derive entirely from the administrative or managerial actions of protocol staking. Rewards are therefore fees paid to node operators in exchange for their services to the network, not profits from the entrepreneurial or managerial efforts of others.

Self-custodial staking directly with a third party

Similarly, if the owner of a cryptoasset delegates its validation rights to a node operator, the cryptoasset owner does not expect to profit from the entrepreneurial or managerial work of another person. The services that the node operator provides to the cryptoasset owner are administrative or managerial in nature, rather than entrepreneurial or managerial, for the reasons discussed above in relation to self (or sole) staking. Whether a node operator stakes its own cryptoasset or obtains validation rights from another cryptoasset owner does not change the nature of protocol staking for purposes of the Howey analysis. In either case, protocol staking remains an administrative or managerial activity, and the expected financial incentives derive entirely from such activity, rather than from the success of the PoS network or other third parties. In addition, the node operator does not guarantee or otherwise set or fix the amount of the reward payable to the cryptoasset owner, but the node operator may deduct its fees from that amount (whether a fixed fee or a percentage of that amount).

Hosting arrangements

In a hosting arrangement, the custodian (whether a node operator or not) does not provide entrepreneurial or managerial work to the cryptoasset owner to whom it provides this service. These arrangements are similar to those discussed above, where a crypto-asset owner delegates its validation rights to a third party, but they also involve the owner granting custody of its deposited crypto-assets. The custodian does not determine whether, when, or how much of the owner’s crypto-assets are staked. The custodian merely acts as an agent to stake the deposited crypto-assets on the owner’s behalf. [16] Furthermore, the custodian’s custody of the deposited crypto-assets and, in some cases, selection of node operators are insufficient to satisfy Howey’s “efforts of others” requirement because these activities are administrative or departmental in nature and do not involve managerial or entrepreneurial work. In addition, the custodian does not guarantee or otherwise set or fix the amount of the reward payable to the crypto-asset owner, but the custodian may deduct its fees (whether fixed or a percentage of that amount) from that amount.

Ancillary Services

The Service Provider may provide the following services to crypto-asset holders in connection with protocol staking (the “Ancillary Services”). These Ancillary Services are solely administrative or administrative in nature and do not involve corporate or managerial work. They are components of a general activity (protocol staking) that is not itself corporate or managerial in nature.

• Slashing Coverage, where the service provider compensates or reimburses stakers for losses incurred as a result of slashing. This protection against node operator errors is similar to the protections that service providers provide in many traditional commercial transactions.

• Early Unbonding, where the service provider allows covered crypto assets to be returned to the owner before the end of the protocol’s unbonding period. [17] This service simply shortens the protocol’s effective unbonding period, providing a convenience to crypto asset owners by alleviating the burden of the unbonding period.

• Alternative Reward Payment Schedule and Amount, where the service provider pays earned rewards at a cadence and amount different from the protocol’s established schedule, and/or rewards are paid earlier or less frequently than granted by the protocol, provided that the reward amount is not fixed, guaranteed, or higher than the amount granted by the protocol. Similar to Early Unbonding, this is merely an optional convenience provided to crypto asset holders in relation to reward allocation and distribution management.

• Crypto-asset aggregation, where the Service Provider provides Crypto-asset holders with the ability to aggregate their Crypto-asset assets to meet the minimum staking requirements of the Protocol. This service is part of a verification process that is administrative or executive in nature. It goes without saying that aggregating holders’ Crypto-asset assets to facilitate their staking is also administrative or executive in nature.

Whether provided individually or as a group of services, the Service Provider does not act in a managerial or corporate manner in providing any or all of these services.

[1]  For purposes of this statement, “crypto-asset” means assets generated, issued and/or transferred using a blockchain or similar distributed ledger technology network (“crypto-network”), including but not limited to assets referred to as “tokens”, “digital assets”, “virtual currencies” and “currencies”, and which rely on cryptographic protocols. In addition, for purposes of this statement, “network” means a Crypto-network.

[2]  This statement represents the views of the staff of the Department of Finance (the “Department”). It is not a rule, regulation, guidance, or statement of the U.S. Securities and Exchange Commission (the “Commission”), and the Commission has neither approved nor disapproved its contents. Like all staff statements, this statement does not have the force of law: it does not alter or amend applicable law, nor does it create new or additional obligations for any person.

[3]  This statement addresses only certain activities involving covered crypto assets that do not have inherent economic attributes or rights, such as the right to produce passive income or to transfer future revenues, profits, or assets of a business.

[4]  This statement addresses only protocol staking, not all its variations. In addition, this statement does not cover all forms of “staking,” such as so-called “liquidity staking,” “re-staking,” or “liquidity re-staking.” The specific staking activities covered by this statement are discussed below under “Protocol Staking Activities Covered by This Statement.”

[5]  Although protocols set out reward rules, node operators are generally free to share rewards or charge fees for their services in a manner different from that specified by the protocol. Some protocols allow node operators to propose and receive rewards that differ from the protocol’s standard rewards.

[6]  Minimum stakes or lock-up periods vary between PoS protocols.

[7]  If a node operator or validator engages in such harmful activities or fails to comply with the technical requirements of the PoS network, their staked crypto assets may be confiscated or “slashed.”

[8]  On some PoS networks, shielded crypto asset owners can stake their shielded crypto assets and receive validation rights that can be delegated to third parties, allowing third parties to use the staked shielded crypto assets to validate transactions on the PoS network on the owner’s behalf. For example, some PoS networks may allow shielded crypto asset owners to “delegate” their validation rights to node operators to achieve this. In this case, the node operator acts as a so-called “delegator” in the staking process. Other PoS networks may use so-called “nominators,” to whom shielded crypto asset owners can delegate their validation rights and who select validators on behalf of the shielded crypto asset owners.

[9]  Custodians typically enter into an agreement with an owner, such as a user agreement or terms of service, that provides that the owner retains title to the covered crypto assets.

[10]  The Department’s view is not determinative of whether any particular agreement pledge activity (defined below) involves the offer and sale of securities. Ultimately, that determination requires an analysis of the facts relevant to a particular agreement pledge activity. The Department’s view on whether a particular agreement pledge activity involves the offer and sale of securities may differ if the facts differ from those described in this statement.

[11]   328 U.S. 293 (1946). We believe that agreement pledges, as well as “agreement pledge activities” as defined in this statement and the views we express in this statement, do not involve notes or other debt instruments because the owner of the covered crypto assets retains title to the covered crypto assets at all times during the pledge process (whether directly or through a custodian).

[12]  See Landreth Timber Co. v. Landreth, 471 US 681, 689 (1985). In that case, the U.S. Supreme Court suggested that the proper test for determining whether a particular instrument clearly falls within the definition of “stock” under Section 2(a)(1) of the Securities Act or has other special characteristics is the economic reality test set forth in Howey. In analyzing whether an instrument is a security, “form should be ignored in favor of substance” (Tcherepnin v. Knight, 389 US 332, 336 (1967)), and “the emphasis should be on the economic reality underlying the transaction, not on the name attached.” United Housing Found., Inc. v. Forman, 421 US 837, 849 (1975).

[13]   Forman, 421 US, at 852.

[14]  See, e.g., SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973).

[15]  See, e.g., First Fin. Fed. Sav. & Loan v. EF Hutton Mortgage, 834 F.2d 685 (8th Cir. 1987) (activities performed were merely administrative and regulatory and thus did not constitute management or entrepreneurial activity of others); Union Planters National Bank of Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174 (6th Cir. 1981) (management tasks and services were not management or entrepreneurial activity under the Howey rule).  See also Donovan v. GMO-Z.com Trust, 2025 US Dist. LEXIS 27871 (SDNY 2025) (“While bureaucracy, technology, and paperwork are often ‘necessary’ for an investment scheme to operate and generate profits, courts have long held that such efforts are insufficient under Section 3 of the Howe Act.”).

[16]  If a custodian does choose whether, when, or how much of an owner’s covered crypto assets to pledge, its activities are outside the scope of this statement.

[17]  Pledged regulated crypto assets are subject to a “bonding period,” a period set by the agreement, after which the owner of the regulated crypto assets becomes eligible to receive rewards. An “unbonding period” is a period set by the agreement for when the regulated crypto assets are “unpledged.” Each agreement has its own bonding and unbonding periods, which can be hours, days, or weeks.