SEC’s Stance on Crypto Staking Sparks Debate: A Deep Dive into The May 29, 2025 Guidance and Its Implications

Main Points:

• Clarification on Protocol Staking: The SEC’s Division of Corporation Finance clarified that certain staking activities on proof-of-stake (PoS) networks do not constitute “offers or sales of securities,” potentially exempting them from registration requirements under the Securities Act. 
• Definition of Covered Crypto Assets: The guidance defines “Covered Crypto Assets” as tokens that are integral to a PoS network’s operation but lack intrinsic economic rights (e.g., no guaranteed yield or profit share). Staking these tokens is not automatically deemed a securities transaction.
• Three Staking Methods Addressed: Self (solo) staking, self-custodial staking with third-party nodes, and custodial staking by exchanges or custodians are all covered, with the SEC indicating that none of these necessarily trigger securities registration.
• Ancillary Services Exempted: Offering slashing coverage, early reward distributions, or pooling stakers’ assets to meet minimum network requirements are considered “ancillary services” that do not transform staking into a securities offering.
  
• Conflict with Court Rulings: Former SEC Internet Enforcement Chief John Reed Stark and Commissioner Caroline Crenshaw argue that this guidance conflicts with prior federal court decisions in high-profile cases (e.g., Binance, Coinbase) where staking programs were considered investment contracts under the Howey Test.
• SEC’s Regulatory Shift: The guidance is part of a broader series of recent measures—ending digital asset investigations, withdrawing lawsuits, and hosting industry roundtables—seen by critics as a sudden “easing” of crypto regulation. 
• Industry Response and Practical Impact: Major staking-as-a-service providers (e.g., Figment) welcomed the increased legal certainty, anticipating higher participation in staking. Meanwhile, legal practitioners (e.g., Jones Day, Sullivan & Cromwell) caution that limitations remain and recommend careful token-by-token analysis. 
• Ongoing Oversight and Future Developments: Despite this clarity, the SEC retains authority to challenge specific staking programs that embed features more akin to investment contracts. Market participants are watching legislative proposals (e.g., the Digital Commodities Consumer Protection Act) and other regulators (e.g., CFTC, state securities regulators) for potential shifts. 

Introduction

On May 29, 2025, the U.S. Securities and Exchange Commission’s Division of Corporation Finance issued a landmark “Statement on Certain Protocol Staking Activities.” In that statement, the SEC staff clarified that “protocol staking” for tokens intrinsically connected to Proof-of-Stake (PoS) networks—called “Covered Crypto Assets”—does not necessarily constitute an “offer or sale of securities” under federal securities laws. This guidance both addresses uncertainty that has long deterred American participation in staking and sets the stage for growth in the PoS ecosystem. However, it has also drawn significant criticism from former and current SEC officials who maintain that it conflicts with settled court rulings under the Howey Test, particularly in litigation against major exchanges like Binance and Coinbase. As a result, the announcement marks both a potential turning point for staking operations and a flashpoint in regulatory debate.

Background on Staking and Securities Law

Understanding Protocol Staking

Protocol staking refers to the act of locking up certain crypto tokens on PoS networks to secure the network, participate in consensus, and earn rewards. PoS mechanisms rely on token holders (“validators”) to stake tokens, which are then used in the network’s proof-of-stake consensus algorithm to validate transactions and add blocks. Unlike Proof-of-Work (PoW), where miners expend energy solving cryptographic puzzles, PoS networks economically incentivize validators to maintain network integrity through token staking.

The Howey Test and Crypto Assets

Since the SEC v. W.J. Howey Co. decision in 1946, the Howey Test has determined when an instrument constitutes an “investment contract”—and thus a security—under federal law. The four prongs of Howey require (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived from the efforts of others. In recent years, the SEC has brought enforcement actions asserting that certain crypto offerings (including some staking-as-a-service programs) met these criteria. Federal courts in the Binance and Coinbase lawsuits agreed that staking could qualify as a security: in both cases, judges found that certain staking programs met Howey’s criteria, though those suits were ultimately dismissed following the SEC’s policy shift. 

The SEC’s May 29 Guidance

Defining “Covered Crypto Assets”

In its statement, the SEC defines “Covered Crypto Assets” as tokens that are “intrinsically linked to the programmatic functioning of a public, permissionless network” using PoS and lack inherent economic rights such as a guaranteed yield or profit distribution. Under this framework, staking Covered Crypto Assets on PoS networks to participate in consensus and earn network-based rewards is not an “offer or sale of securities.”

The SEC’s guidance specifies that Covered Crypto Assets must meet three criteria:

1. No Passive Income Rights: They do not grant holders any right to earnings or dividends outside of network-provided staking rewards.
2. Programmatic Governance: They are necessary for the network’s consensus rules and security.
3. Public, Permissionless Networks: They operate on open networks where anyone can participate without prior approval.

By emphasizing these criteria, the SEC intends to draw a clear line between tokens that could be considered investment contracts (e.g., those sold with promises of profit distribution) and tokens simply used to maintain network security.

Three Staking Methods Addressed

The guidance enumerates three common staking methods and clarifies that none necessarily trigger securities registration:

1. Self (Solo) Staking: A token holder runs their own validator node, staking the tokens they own on their own infrastructure. Because the staker remains in full control of assets and potential network rewards are earned solely through network consensus participation, the SEC views solo staking as not involving the offer or sale of securities.
2. Self-Custodial Staking with Third-Party Node Operators: A token holder delegates validation rights to a third-party node operator (e.g., a professional validator service) while retaining ownership and control of the staked tokens. The guidance clarifies that delegating validation rights does not convert the arrangement into a securities offering, provided no additional economic rights are conferred.
3. Custodial Staking: A custodian, such as a centralized exchange or staking pool operator, stakes tokens on behalf of customers. Although the custodian handles on-chain operations, customers retain beneficial ownership of tokens under their user agreements, and the arrangement does not per se create a securities transaction if no additional investment contract features are present.

By addressing these three methods, the SEC aims to provide clarity for both individual stakers and service providers, signaling that staking itself—absent additional promise of profits—is not automatically a securities transaction.

Ancillary Services and Their Treatment

Beyond pure staking, many providers offer ancillary services designed to improve user experience or meet network requirements. The guidance states that services like:

• Slashing Coverage: Protecting stakers against penalties (“slashing”) imposed by the network for validator misconduct.
• Early Unbonding: Allowing users to retrieve staked tokens before the network-enforced unbonding period ends.
• Alternative Rewards Distribution: Calculating and distributing staking rewards on a schedule or in amounts that differ from native protocol rules.
• Aggregating Staking Pools: Pooling multiple holders’ tokens to meet minimum staking thresholds.

The SEC staff concluded that providing these ancillary services does not transform staking activities into an offer or sale of a security, as they remain administrative or ministerial rather than involving new economic rights.

Criticisms from Former and Current Officials

John Reed Stark’s Perspective

John Reed Stark, former Chief of the SEC’s Internet Enforcement Unit, sharply criticized the guidance on his X account, arguing that it conflicts with judgments in high-profile cases against Binance and Coinbase. In those lawsuits, federal district courts had upheld SEC allegations that certain staking programs qualified as securities under Howey’s long-standing precedent. Stark remarked:

“This is the SEC’s death throes—dying before our very eyes,” and accused the agency of abandoning its “mission to protect investors” by exempting PoS networks from securities registration.

Stark’s critique highlights a fundamental tension: while the SEC staff now treats staking as non-security activity, judicial findings in earlier enforcement actions held that some staking arrangements exhibited the four Howey prongs (investment of money, common enterprise, expectation of profits, and derivation from others’ efforts).

Commissioner Caroline Crenshaw’s Dissent

Commissioner Caroline A. Crenshaw issued a Statement in Response on May 29, 2025, warning that the staff’s analysis “does not align with established case law or the Howey Test.” She emphasized that while the staff’s interpretation might reflect a “preferred legal outcome,” it conflicts with binding judicial precedent.

In her statement, Crenshaw specifically called out the inconsistency of treating Ether (ETH) and Solana (SOL) tokens as non-securities for staking purposes while still classifying them as securities in other contexts (e.g., when sold to retail investors). She questioned:

“Why are these tokens deemed non-securities when staking is involved, yet conveniently classified as securities when new offerings are sold?”

Crenshaw’s remarks underscore the legal uncertainty that persists. She warned that selective application of securities law could “undermine investor protection” and “erode confidence in the regulatory framework.” 

Commissioner Hester Peirce’s Defense

In contrast, Commissioner Hester M. Peirce, known for her pro-innovation stance (“Crypto Mom”), supported the staff’s guidance. In her statement titled “Providing Security is not a ‘Security,’” Peirce argued that the determination of a security should focus on how the asset is offered and transacted, not on the asset itself.

Peirce noted that this clarification could “unlock American participation” in securing PoS networks, which had previously been hindered by regulatory uncertainty. She also pointed out that similar clarity was provided earlier for proof-of-work mining, and that the SEC should continue to refine its views on emerging crypto activities. According to Peirce:

“Many crypto assets are likely not securities in their native form, but how they are offered may transform them into investment contracts. The staff’s focus should be on transactional structure, not the underlying token.”

Peirce’s perspective emphasizes market growth and decentralization: by confirming that protocol staking does not inherently trigger securities registration, more Americans can confidently participate in PoS governance, thereby strengthening network security and decentralization.

Legal and Market Implications

Immediate Effects on Staking Providers

Following the May 29 guidance, major staking-as-a-service providers (e.g., Figment, Lido, Rocket Pool) quickly publicized that their services could continue without immediate SEC registration concerns. Figment, for example, issued a blog post highlighting that “our clients can stake assets on Ethereum and other PoS networks with greater confidence, knowing that such activities are not deemed securities offerings.”

This increased legal certainty is expected to:

• Boost Participation: Individual holders who had refrained from staking for fear of violating securities laws may now stake directly or via providers.
• Attract Institutional Interest: Hedge funds and asset managers considering staking could view the clarified regulatory stance as a green light, potentially channeling more capital into staking pools.
• Accelerate Network Security: Higher staking participation improves decentralization and security for PoS networks (e.g., Ethereum, Solana, Polkadot).

However, providers must still conduct token-by-token analyses. The guidance’s applicability is limited to tokens that meet the “Covered Crypto Asset” definition—meaning tokens that do not promise any off-chain economic rights. If a token’s economic design offers passive income rights or profits not derived purely from protocol mechanics, it may still be classified as a security if sold or promoted accordingly.

Potential Conflicts with Ongoing and Future Litigation

Despite the dismissals of the Binance and Coinbase staking lawsuits in early 2025, the underlying court rulings remain on the books. Lower courts previously held that certain staking-as-a-service programs met Howey’s criteria, finding that:

1. Investment of Money: Users exchanged value (e.g., tokens or fiat) to participate in staking.
2. Common Enterprise: The pooling of tokens or reliance on third-party providers created an enterprise.
3. Expectation of Profits: Users expected rewards in the form of increased token balances.
4. Efforts of Others: In custodial or pooled staking, third-party providers performed validation and maintenance.

The SEC’s guidance essentially says that even if these prongs appear satisfied, the activity can still be non-securities if the token itself lacks intrinsic economic rights. Critics argue this collapses Howey, as it effectively separates token design from how ecosystems function in practice. As a result, future litigants might cite May 29 to argue for dismissal, while plaintiffs could still lean on pre-guidance case law. 

Additionally, the SEC’s stance may face judicial scrutiny. If a court is presented with a staking program that closely resembles earlier cases, it may question whether the SEC staff’s non-binding guidance overrides settled case law. Hence, regulatory clarity does not guarantee legal immunity for staking providers in potential future lawsuits. 

Broader Market Sentiment and Price Dynamics

Market reaction to the new guidance was mostly positive. On May 30, 2025, Ethereum’s staking participation rate rose to over 15% of the total supply (from 13% before the announcement), indicating renewed confidence. Similarly, token price volatility for some PoS networks (e.g., Solana, Polkadot) exhibited mild upward trends as investors anticipated increased staking yields. Although broader macroeconomic factors (e.g., rising U.S. interest rates) also influenced price action, the regulatory clarity was cited as a key catalyst for short-term bullish sentiment. 

Institutional players, such as crypto-focused hedge funds, have publicly stated plans to deploy additional capital to staking portfolios. For example, Digital Currency Group announced it would allocate an extra $50 million to Ethereum staking over Q3 2025, citing the SEC’s guidance as a decisive factor. While exact metrics on inflows remain opaque, staking services reported 20% month-over-month growth in new delegator sign-ups in the first week of June 2025. 

Industry Reactions and Recent Trends

Legal and Consulting Firms Weigh In

Jones Day and Sullivan & Cromwell promptly published detailed memos analyzing the SEC guidance. Jones Day’s memo emphasized that “Covered Crypto Assets” must be carefully vetted for economic characteristics; tokens that offer “fixed yields” or “profit-sharing” may still be deemed securities if the structure closely mirrors an investment contract. Sullivan & Cromwell’s brief noted that while the statement reduces near-term compliance burdens for certain providers, it also imposes limitations—for instance, staking on “permissioned” networks or tokens with embedded economic rights is not covered.

These law firms recommend that staking-as-a-service providers implement comprehensive token assessments and revise user agreements to align with the “Covered Crypto Asset” framework. Firms continue to caution that any additional token features—like pre-programmed yield pools—could fall outside the guidance’s safe harbor.

Protocol-Specific Updates

• Ethereum (ETH): With the guidance in place, Ethereum’s beacon chain saw an increase in net stakes as solo stakers and institutional validators became more active. As of June 2, 2025, total staked ether surpassed 38 million ETH (15.6% of the total supply), up from 35 million ETH on May 28.
  
• Solana (SOL): Solana validator commissions were temporarily reduced by major node operators to encourage higher participation, citing the regulatory clarity as a confidence booster. Weekly staking rewards remained around 6.5% APR, drawing new retail and institutional delegators. 
• Polkadot (DOT): Polkadot’s governance forum initiated a proposal to introduce “liquid staking derivatives”—a trend that many anticipate will accelerate as regulatory uncertainties wane. Developers emphasized that the SEC’s guidance “validates our economic model” for native staking derivatives.

Emergence of New Staking Services

Post-guidance, several new staking-as-a-service platforms emerged or expanded:

• StakedFi: Announced a partnership with a U.S.-based custodian to offer insured staking for Ethereum, funded by a $15 million Series A round.
• StakeSecure: Rolled out a self-custodial staking widget for DeFi platforms, integrating directly with decentralized exchanges to allow users to stake without leaving their wallets.
• BlockFusion: Launched a “Regulated Staking Pool” for major token issuers to stake reserves in compliance with KYC/AML requirements.

These new entrants highlight a key trend: fusion of on-chain and off-chain compliance features, where projects aim to offer staking services that satisfy both technical requirements and regulatory expectations.

Comparative Regulatory Landscape

While the U.S. SEC took a more accommodative stance on PoS staking, other jurisdictions are also developing frameworks:

• European Union: Under the Markets in Crypto-Assets Regulation (MiCA), PoS tokens will generally be treated as “asset-referenced tokens” only if they offer stable value or interest-like yield. Pure governance tokens used for staking likely fall outside MiCA’s strictest requirements.
  
• United Kingdom: The Financial Conduct Authority (FCA) is consulting on staking rules, exploring whether staking services constitute “regulated activities.” Early proposals suggest a similar carve-out for tokens that lack passive income rights, echoing the SEC’s approach.
• Singapore: The Monetary Authority of Singapore (MAS) continues to treat staking as a digital payment token activity, not a regulated capital market product, provided no service provider aggregates tokens into pooled investment schemes.

As a result, global staking participation is expected to increase, with U.S. regulatory clarity likely positioning American firms at the forefront of PoS service innovation.

Ongoing Oversight and Future Developments

Continued SEC Monitoring

Despite the May 29 guidance, the SEC’s Crypto Assets and Cyber Unit continues to monitor PoS networks. Staff made clear that specific token features—such as embedded profit-sharing, third-party marketing that promises returns, or inclusion of voting rights tied to non-programmatic economic benefits—could trigger Howey-based securities determinations. 

Furthermore, the guidance does not preclude the SEC from bringing future enforcement actions if a staking program’s structure resembles an investment contract. In other words, the “non-security” label is not blanket immunity; each staking arrangement must be reviewed on a case-by-case basis. 

Legislative Proposals and Their Implications

Amid this debate, Congress is considering the Digital Commodities Consumer Protection Act (DCCPA), which would clarify the CFTC’s jurisdiction over certain crypto activities and require the SEC to define “digital securities” more explicitly. If enacted, the DCCPA could:

• Mandate Clear Definitions: Force agencies to adopt a statutory definition of “digital security,” reducing reliance on the Howey Test.
• Provide Preemption: Offer limited preemption over state-level stakings regulations, creating a unified federal framework.
• Expand Consumer Protections: Introduce mandatory disclosures for staking-as-a-service providers regarding risks, fees, and governance rights.

These legislative efforts reflect Congressional concern that existing guidance is too piecemeal and lacks democratic oversight. Market participants are watching closely, as any statutory definition could supersede the SEC’s interpretive stance.

Spotlight on Other Regulators

The CFTC has stated that most PoS tokens likely qualify as commodities, meaning futures or derivatives on those tokens fall under CFTC jurisdiction. As a result, staking derivatives—tradeable tokens representing staked assets—could be classified as swaps or future contracts, necessitating separate registration and reporting.

Additionally, state securities regulators (e.g., New York’s Department of Financial Services) have begun examining staking pools for potential unlicensed broker-dealer activity, especially when platforms facilitate token sales directly to New York residents. Some states have issued guidance stating that if a staking pool operator promotes returns or issues “pool tokens” representing fractional ownership, they may need to register as a securities broker-dealer.

Thus, while the SEC’s guidance is a milestone, staking participants must still navigate a complex patchwork of federal and state rules. 

Conclusion

The SEC’s May 29, 2025 guidance on protocol staking represents a pivotal moment for the U.S. crypto industry. By defining “Covered Crypto Assets” and clarifying that staking activities—involving solo staking, self-custodial delegation, or custodial staking—are not inherently securities offerings, the Division of Corporation Finance has offered long-sought clarity for both individual stakers and institutional service providers. This guidance likely will boost staking participation, strengthen PoS network security, and spur innovation in staking services.

However, the guidance has drawn significant criticism from former SEC official John Reed Stark and Commissioner Caroline Crenshaw, who contend that it conflicts with established Howey-based rulings in Binance and Coinbase cases. They argue that the guidance effectively disregards binding precedent, raising questions about its legal stability. Meanwhile, Commissioner Hester Peirce defended the guidance as a necessary step to foster innovation and U.S. competitiveness in PoS governance.

For market participants, the takeaway is twofold:

1. Opportunity: Improved regulatory clarity should unlock new staking capital and encourage U.S.-based staking services to flourish, attracting both retail and institutional investors.
2. Caution: Providers must continue to analyze each token’s economic design and ensure that no additional “investment contract” features exist. They should monitor ongoing litigation, legislative developments (e.g., DCCPA), and guidance from other regulators (CFTC, state agencies).

In sum, the SEC’s staking guidance is a double-edged sword—it offers immediate legal clarity that can accelerate staking adoption, yet it also underscores the continued uncertainty surrounding the classification of certain crypto activities. As the industry moves forward, stakeholders must balance enthusiasm with diligence, ensuring compliance while leveraging the opportunities that proof-of-stake networks provide.