Liquid Staking Clears the Howey Hurdle

The Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a staff statement expressing its views that certain liquid staking activities fall outside the federal securities laws.[1] 

This guidance follows recent regulatory developments around digital asset staking services.  For example, in May 2025, the Division issued guidance on protocol staking that covered self-staking, custodial arrangements, and third-party staking. However, it excluded liquid staking from its scope, leaving market participants without clear guidance on this growing DeFi sector.[2] Further, the liquid staking guidance arrives just months after the SEC’s March 2025 voluntary dismissal of its enforcement action against a self-custodial wallet developer. The SEC had filed charges against the software developer in June 2024, alleging unregistered broker operations and securities offerings through its facilitation of liquid staking services.[3] The dismissal, combined with this new staff guidance, suggests a shift toward a more collaborative regulatory approach.

The Division’s Liquid Staking Framework

The new guidance defines liquid staking as a protocol staking arrangement where crypto asset owners deposit their assets with third-party providers and receive newly minted “Staking Receipt Tokens” in return. These Staking Receipt Tokens evidence the depositor’s ownership of the staked assets and any accrued rewards while providing liquidity through secondary market tradability — addressing a key limitation of traditional staking where assets are “locked up” during the staking period. 

Critically, the Division concluded that liquid staking activities, as described in the statement, do not involve the offer and sale of securities under federal law. The SEC Staff applied the Supreme Court’s Howey test, which requires an investment of money in a common enterprise with a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others.

The Division’s analysis hinged on characterizing liquid staking providers’ activities as merely “administrative or ministerial” rather than entrepreneurial or managerial. According to the SEC Staff, these providers act as agents for depositors without making discretionary decisions about whether, when, or how much to stake. The providers also do not guarantee returns, though they may subtract fees from rewards.

Regarding Staking Receipt Tokens, the Division views them as receipts for the underlying crypto assets rather than securities.[4] The SEC Staff emphasized that these tokens don’t generate rewards independently — rather, any economic benefits flow from the underlying protocol staking activities, which the Staff had determined don’t constitute securities transactions.

Important Limitations and Caveats

The Division’s statement included numerous factual assumptions that significantly limit its scope. Specifically, it only applies to arrangements where liquid staking providers do not make discretionary staking decisions, do not guarantee returns, and engage solely in administrative activities. Importantly, any deviation from these assumptions places the activity outside the statement’s protective scope.

The Division also clarified that its conclusions don’t extend to situations where Staking Receipt Tokens are used to generate additional returns through other crypto applications, or where the underlying crypto assets are themselves part of investment contracts.

Commissioner Crenshaw’s Dissent

Not all SEC officials embrace the Division’s guidance. Commissioner Caroline Crenshaw issued a pointed response criticizing the statement for creating a “wobbly wall of facts without an anchor in industry reality.” She argued that the statement’s multiple factual assumptions and circumscribed legal analysis provide little practical comfort to market participants, particularly since the guidance represents only Staff views rather than official SEC policy.

Looking Forward

While this guidance represents welcome clarity for the liquid staking sector, market participants should carefully analyze whether their specific arrangements align with the statement’s factual assumptions, especially given the limited scope of the Division’s statement. The crypto industry continues to evolve rapidly, and regulatory approaches may shift with changing market conditions and political leadership. Companies engaged in liquid staking should closely monitor future regulatory developments in this dynamic space.

[1]See Katten’s coverage of liquid restaking here.

[2]See Katten’s Quick Reads coverage of the Division staff’s previous statement on staking activities here.

[3]See Katten’s Quick Reads coverage of the Consensys litigation here.

[4] Note, however, that the definition of “security” under the Securities Act of 1933 includes, among other things, a “receipt for” a security.  15 U.S.C. § 77b(a)(1).  The SEC had previously argued that certain wrapped tokens were securities because they were a “receipt for” another token offered and sold as a security. See Complaint at ¶ 67, SEC v. Terraform Labs PTE LTD, No. 1:23-23-cv-01346 (S.D.N.Y. Feb. 16, 2023).  The District Court for the Southern District of New York did not rule on the SEC’s novel theory.