Source: U.S. SEC Office of the Chief Accountant; Translated by AIMan@Golden Finance
Introduction
In an effort to provide greater clarity on the applicability of federal securities laws to cryptoassets, [1] U.S. Department of Corporate Finance (DFI) is working on certain networks that use proof-of-stake (PoS) as a consensus mechanism (“PoS Networks”) ) in activities known as “staking” [2]. Specifically, this Notice addresses the staking of crypto assets intrinsically linked to the programmatic operation of public, permissionless networks that are used to participate in and/or be obtained as a result of participation in the consensus mechanisms of such networks, or for maintaining the technical operation and security of such networks and/or for maintaining the technical operation and security of such networks. In this statement, we refer to these crypto assets as “Covered Crypto Assets” [3] and their staking on PoS networks as “protocol staking”.
Protocol Staking
The network relies on cryptography and economic mechanism design to reduce reliance on designated trusted intermediaries to verify network transactions and provide settlement guarantees 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 contains 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 agree on the “state” of the network (or an 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 used to prove that node operators participating in the network (“node operators”) have contributed value to the network, which may be forfeited if they behave dishonestly in some cases. [4] in a PoS network, node operators must stake the network’s covered crypto assets to be programmatically selected by the network’s underlying software protocol to validate new blocks of data and update the network state. Once selected, the node operator will act as a “validator”. In exchange for providing validation services, validators will receive two types of “rewards”: (1) newly minted (or created) covered crypto assets, which are programmatically distributed to validators by the network in accordance with their underlying software protocols; (2) Parties seeking to add their transactions to the network to cover a percentage of the transaction fees paid by crypto assets. [5]
In a PoS network, node operators must commit or “stake” protected crypto assets to be eligible for verification and receive rewards, which is typically achieved through smart contracts. A smart contract is an autonomously executable program that automates the actions required in a network transaction. During the staking period, the protected crypto assets will be “locked” and cannot be transferred for a certain period of time, depending on the terms of the applicable agreement. [6] validators do not take possession or control of the staked protected crypto assets, which means that the ownership and control of the protected crypto assets will not change during the staking period.
The underlying software protocols of each PoS network include the rules for operating and maintaining the PoS network, as well as the methods for selecting validators among node operators. Some protocols specify random selection of validators, while others use specific criteria to choose validators, such as the amount of protected crypto assets staked by node operators. The protocols may also include rules designed to prevent actions that could jeopardize network security and integrity, such as validating invalid blocks or double signing (when validators attempt to add the same transaction to the network multiple times, effectively reusing the same crypto asset). [7]
The rewards from staking agreements provide economic incentives for participants to use their covered crypto assets to maintain the security of the PoS network and ensure its continuous operation. An increase in the number of covered crypto assets for staking can enhance the security of the PoS network and reduce the risk of malicious parties controlling a majority of the crypto assets. Once malicious parties control these assets, they can manipulate the PoS network by influencing transaction validation and potentially altering the network’s transaction history.
Holders of covered crypto assets can earn rewards by acting as node operators and staking their holdings of covered crypto assets. When self-staking (or individually), the holder always has ownership and control over its covered crypto assets, as well as the crypto private keys.
Alternatively, covered crypto asset owners can participate in the PoS network validation process by self-staking directly to a third party without having to run their own nodes. Covers crypto asset owners granting their verification rights to third-party node operators. When using a third-party node operator [8], covered crypto asset owners will receive a portion of the rewards, while providers will also receive a portion of the rewards for their services in validating transactions. When self-staking directly to a third party, the owner of the covered crypto asset retains ownership and control of their crypto assets and their private keys.
In addition to self-staking (or alone) and self-custody staking directly with a third party, the third form of protocol staking is so-called “escrow” staking, where a third party (“custodian”) takes custody of the owner’s crypto assets and assists them in staking on behalf of the owner. When an owner deposits their crypto assets with a custodian, the custodian keeps the deposited crypto assets in a digital “wallet” controlled by them. The custodian stakes crypto assets on behalf of the owner in order to receive an agreed share of the reward, either by using a node operated by the custodian or through a third-party node operator of its choosing. During the staking process, the deposited crypto assets are always under the control of the custodian, and the crypto asset owner should retain ownership of the crypto assets held by the custodian. [9] In addition, deposited crypto assets: (1) Custodian shall not use them for operational or general business purposes; (2) shall not lend, pledge or repledge for any reason; (3) held in a manner that is not subject to claims by third parties. To this end, the custodian shall not use the deposited crypto assets for leverage, trading, speculation, or discretionary activities.
SEC’s View on Protocol Staking Activities
According to the SEC’s Corporate Finance Department, the “Negotiated Pledge Activity” (as defined below) in connection with the Agreed Pledge does not involve Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or the Securities Exchange Act of 1934 (the “Exchange Act”). Offering and sale of securities as defined in Section 3(a)(10). [10] as a result, the Department believes that participants in protocol staking activities are not required to register transactions with the SEC under the Securities Act and are not required to qualify for registration exemptions under the Securities Act in connection with these protocol staking activities.
The agreement staking activities covered by this declaration
The views of the SEC’s finance department involve the following protocol staking activities and transactions (“protocol staking activities” and each “protocol staking activity”):
- Stake crypto assets on the PoS network;
- Activities conducted by third parties involved in the protocol staking process—including but not limited to third-party node operators, validators, custodians, representatives, and nominators (“service providers”)—including their roles in earning and distributing rewards; and
- Provide auxiliary services (defined as follows).
This statement only concerns the staking activities related to the following types of agreement staking.
- Self (or solo) staking refers to node operators using their own resources to stake the cryptocurrency assets they own and control. Node operators may operate the node alone or together with others and stake their cryptocurrency assets.
- Direct self-custody staking with third parties, where node operators are granted validation rights by the crypto asset owners according to the terms of the agreement. Reward payments can flow directly from the PoS network to the crypto asset owners or can be indirectly channeled to them through node operators.
- Escrow arrangement, where a custodian stakes on behalf of the owner of the crypto assets it holds. For example, a cryptoasset trading platform that holds deposited crypto assets for clients may stake such crypto assets on behalf of clients on a PoS network that allows them to delegate and with the consent of the client. Custodians will stake deposited crypto assets using their own nodes or select third-party node operators. In the latter case, this choice is the sole decision of the custodian during the staking process.
Discussion on Protocol Staking Activities
Section 2(a)(1) of the Securities Act and Section of the Exchange Act 3(a)(10) defines “securities” by listing various financial instruments, including “stocks,” “notes,” and “bonds,” respectively. Because cryptoassets do not constitute any of the financial instruments explicitly enumerated in the definition of “securities,” we analyze certain transactions involving cryptoassets in the context of protocol pledges, based on the “investment contract” test set forth in the U.S. Securities and Exchange Commission v. W.J. Howey & Co. [11] The “OmniVision Test” is used to analyse arrangements or instruments not listed in these statutory provisions in light of their “economic realities”. [12]
In assessing the economic realities of a transaction, the test is whether there is a financial investment in a common enterprise that is premised on the reasonable expectation that profits will come from the entrepreneurial or managerial efforts of others. Since [13] Howey, federal courts have explained that the “efforts of others” in Howey are met when “the efforts of others other than investors are undeniably important and critical management efforts that affect the success or failure of the business.” [14] Federal Court also noted that administrative and managerial activities do not fall within the management or entrepreneurial efforts that satisfy the “efforts of others” standard in Howey. [15]
self (or solo) staking
Self-staking (or solo) by node operators is not based on a reasonable expectation of profit from someone else’s entrepreneurship or management. Instead, 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, making them eligible for rewards under the PoS network’s underlying software protocol. In order to receive rewards, the activities of node operators 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. The node operator’s expectation of rewards does not stem from the stewardship or entrepreneurial efforts of any third party that the PoS network relies on for success. Instead, the expected economic incentives of the protocol derive solely from the administrative or managerial actions of the protocol’s pledge. As such, rewards are fees paid to node operators in exchange for the services they provide to the network, rather than profits from the entrepreneurial or managerial efforts of others.
Directly self-custody staking with third parties
Similarly, if the owner of a crypto asset grants its validation rights to a node operator, the owner of a crypto asset does not expect to make a profit from someone else’s entrepreneurship or management work. The services provided by node operators to crypto asset owners are administrative or administrative in nature, rather than entrepreneurial or administrative, for reasons related to self-staking (or individual) staking, as mentioned above. Whether node operators stake their own crypto assets or obtain validation rights from other crypto asset owners does not change the nature of protocol staking to serve the purposes of OmniVision’s analysis. In either case, protocol staking remains an administrative or managerial activity, and the expected financial incentives stem solely from such activity, rather than 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 rewards payable to the Crypto Asset Owner, but the Node Operator may deduct its fees (whether a fixed fee or a percentage of that amount) from that amount.
Custody Arrangement
In an escrow arrangement, the custodian (whether a node operator or not) does not provide corporate or administrative work to the owners of the crypto assets to which this service is provided. These arrangements are similar to those discussed above, in which the owner of a cryptoasset grants its verification rights to a third party, but they also involve the owner granting custody of the crypto assets it deposits. Custodians don’t decide if, when, or how much of the owner’s crypto assets to stake. The custodian simply acts as an agent, staking the deposited crypto assets on behalf of the owner. [16] addition, the custodian custody of deposited crypto assets, and in some cases the selection of node operators, is not sufficient to satisfy OmniVision’s “efforts of others” requirement, as these activities are administrative or departmental in nature and do not involve management or corporate work. In addition, the custodian does not guarantee or otherwise set or fix the amount of rewards payable to the owner of the crypto asset, but the custodian may deduct its fees (whether fixed or a percentage of that amount) from that amount.
Auxiliary Services
Service providers may offer the following services related to protocol staking to holders of crypto assets (“auxiliary services”). These auxiliary services are purely administrative or managerial in nature and do not involve business or management work. They are part of the general activity (protocol staking), which itself does not have a business or managerial nature.
- Slashing Coverage (, the service provider will compensate or reimburse staking users for losses incurred due to slashing. This protective measure against node operator errors is similar to the protections offered by service providers in many traditional business transactions.
- Early unbinding allows service providers to return covered crypto assets to their owners before the end of the agreement’s unbinding period. ) This service simply shortens the effective unbinding period of the agreement, providing convenience for crypto asset owners by alleviating the burden of the unbinding period.
- The schedule and amount of alternative reward payments are issued by the service provider at a pace and amount different from the schedule set by the agreement, and/or the rewards are paid earlier or at a lower frequency than granted by the agreement, provided that the reward amount is not fixed, guaranteed, or higher than the amount granted by the agreement. Similar to early unbinding, this is merely an optional convenience provided to cryptocurrency holders related to the management of reward distribution and issuance.
- Aggregated crypto assets, service providers offer holders of crypto assets the functionality to aggregate their crypto assets to meet the minimum staking requirements of the protocol. This service is part of the verification process, which itself has administrative or regulatory nature. Undoubtedly, the aggregated holders’ crypto assets help them in staking, and their nature also has an administrative or regulatory aspect.
Whether provided individually or as a group of services, the service provider does not act in a managerial or corporate manner when providing any or all of the services.
[17] For the purposes of this Notice, “Cryptoassets” means assets generated, issued, and/or transferred using blockchain or similar distributed ledger technology networks (“Crypto Networks”), including, but not limited to, assets referred to as “tokens”, “digital assets”, “virtual currencies” and “currencies” that rely on cryptographic protocols. In addition, for the purposes of this Notice, “Network” refers to an encrypted network.
[1] This statement represents the views of the staff of the company’s finance department (“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 is not legally binding: it does not alter or amend applicable law, nor does it create any new or additional obligations for anyone.
[2] This statement is solely aimed at certain activities involving crypto assets, which do not possess inherent economic attributes or rights, such as the right to generate passive income or transfer future income, profits, or assets of a business.
[3] This statement is only applicable to protocol staking and not to all its variants. Furthermore, this statement does not cover all forms of “staking,” such as so-called “liquid staking,” “re-staking,” or “liquidity re-staking.” The specific staking activities covered by this statement will be discussed in the section below titled “Protocol Staking Activities Covered by this Statement.”
[4] Although the protocol establishes reward rules, node operators often have the freedom to share rewards or charge service fees in ways that differ from the protocol’s specifications. Some protocols allow node operators to propose and receive rewards that are different from the standard rewards set by the protocol.
[5] The minimum staking or locking periods for different PoS protocols vary.
[6] If node operators or validators engage in such harmful activities or fail to comply with the technical requirements of the PoS network, their staked crypto assets may be confiscated or “slashed.”
[7] On some PoS networks, the owner of a protected crypto asset can stake their protected crypto assets and gain verification rights that can be granted to a third party, allowing a third party to use the staked protected crypto asset to verify transactions on the PoS network on behalf of the owner. For example, some PoS networks may accomplish this by allowing the owner of a protected crypto asset to “delegate” their verification rights to a node operator. In this case, the node operator acts as a so-called “delegator” during the staking process. Other PoS networks may use so-called “nominators,” where the owner of a protected crypto asset can grant their verification rights to a nominator, who selects a validator on behalf of the owner of the protected crypto asset.
[8] Custodians typically enter into agreements with owners, such as user agreements or terms of service, stipulating that the owner retains ownership of the covered crypto assets.
[9] The views of the department are not a decisive factor in determining whether any specific protocol staking activity (as defined below) involves the issuance and sale of securities. The ultimate determination requires an analysis of the facts related to the specific protocol staking activity. If the facts differ from those described in this statement, the department’s views on whether the specific protocol staking activity involves the issuance and sale of securities may differ.
[10] 328 US 293 [11]1946(. We believe that protocol staking and the “protocol staking activities” defined in this statement, as well as the viewpoints expressed in this statement, do not involve notes or other debt instruments, as the owners of the covered crypto assets always retain ownership of their covered crypto assets during the staking process (whether through direct ownership or through custodians).
) See Landreth Timber Co. v. Landreth, 471 US 681, 689 [12]1985(. In that case, the U.S. Supreme Court recommended that the appropriate test to determine whether a particular instrument clearly falls within the definition of “stock” under Section 2)a()1( of the Securities Act or has other special properties is the economic reality test provided in Howey. In analysing whether an instrument is a security, “the form should be ignored and the substance should be emphasized” (Tcherepnin v. Knight, 389 US 332, 336 )1967(), “The emphasis should be on the economic reality behind the transaction, not on the attached name.” United Housing Found., Inc. v. Forman, 421 US 837, 849 )1975(.
) Forman, 421 US, page 852.
[13] For example, see SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973).
[14] See, for example, First Fin. Fed. Sav. & Loan v. EF Hutton Mortgage, 834 F.2d 685 [15]8th Cir. 1987( (activities engaged in were administrative and jurisdictional in nature only and therefore did not constitute managerial or entrepreneurial conduct by others); Union Planters National Bank of Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174 )6th Cir. 1981( (administrative tasks and services are not managerial or entrepreneurial acts under Howey’s rule). See also Donovan v. GMO-Z.com Trust, 2025 US Dist. LEXIS 27871 )SDNY 2025( ("For the operation of an investment program and the resulting profits, governmental, technical, and clerical work is usually’ necessary’, but the court has long held that these efforts are not sufficient under the provisions of Article 3 of the Howey Tax Code. ”）。
) If the custodian indeed chooses whether, when, or how much of the owner’s insured cryptocurrency assets to stake, then its activities are not within the scope of this statement.
[16] Staked regulated crypto assets are subject to a “binding period”, which is set by the protocol, after which the owner of the regulated crypto asset will be eligible for rewards. The “unbonding period” is set by the protocol and is used for the time to “unstaking” regulated crypto assets. Each agreement has its own binding and unbinding periods, which can be hours, days, or weeks.
