The SEC has clearly stated that independent staking, delegated staking, and custodial staking that are directly related to the network consensus mechanism do not constitute securities issuance.
Guidelines released on May 29 specify that rewards obtained through network validation are considered service compensation, rather than earnings derived from the efforts of others, and therefore do not apply to the Howey test (the legal standard in the U.S. for determining whether an investment is a security).
Validators, node operators, and retail or institutional investors can now participate with peace of mind, without worrying about regulatory uncertainty, which will further promote the adoption of Proof of Stake (PoS) networks.
Yield farming, DeFi packages promising fixed returns, and lending schemes disguised as staking remain outside the legal red line and may be considered securities issuance.
On May 29, 2025, the U.S. Securities and Exchange Commission released new guidelines regarding cryptocurrency staking, aimed at providing regulatory clarity. Prior to this, investors and service providers were uncertain whether regulatory authorities would classify staking rewards as securities, thus facing legal risks.
The SEC's new initiative clarifies which types of staking are permitted and which are not. The guidelines provide clear compliance support for node operators, validators, and individual stakers, viewing protocol-level staking as a core network function rather than a speculative investment.
This article will analyze how regulators define cryptocurrency staking under the new regulations, which behaviors remain prohibited, who will benefit, and what practices should be avoided.
Whether you are an independent validator or participating in staking through third-party services, understanding these latest changes is key to maintaining compliant operations in the U.S.
In 2025, the SEC's Division of Corporation Finance released landmark guidelines clarifying under what circumstances protocol-level staking based on PoS networks does not constitute securities issuance.
These guidelines apply to independent staking, delegated staking to third-party validators, and custodial schemes, as long as these methods are directly related to the network's consensus process.
The SEC has made it clear that these staking activities do not meet the definition of "investment contracts" under the Howey test.
The regulatory body has also distinguished true protocol-level staking from schemes that promise returns through the efforts of others (such as lending or speculative platforms).
According to the guidelines, staking rewards obtained through direct participation in network activities (such as transaction validation or blockchain security) will not be considered investment income.
The SEC's Division of Corporation Finance has explicitly stated that staking activities in specific PoS networks, as long as they are part of the network consensus process, do not constitute securities issuance. Such protocol-level staking is viewed as administrative activity rather than an investment contract.
The guidelines clearly allow the following staking models:
Independent Staking (Solo Staking): The SEC's latest guidelines allow individuals to stake their crypto assets using their own resources and infrastructure. As long as individuals retain ownership and control of the assets and directly participate in network validation, their staking activities are not classified as securities issuance.
Delegated Staking (Non-Custodial): The SEC allows users to delegate validation rights to third-party node operators while retaining control over their crypto assets and private keys. Since this model does not involve the transfer of asset ownership and does not create an expectation of profit based on the efforts of others, it is considered compliant. Whether the node operator uses their own crypto assets for staking does not affect the Howey test analysis of protocol-level staking.
Custodial Staking: Custodians, such as cryptocurrency exchanges, may stake on behalf of users, but must ensure that the assets are clearly held for the owner's benefit, not repurposed, and fully disclose relevant processes and information to the owner before staking activities begin.
Validator Node Operation Services: The guidelines allow for the operation of validator nodes and direct rewards from the network. Such activities are viewed as providing technical services rather than investing in third-party businesses.
Did you know? Independent staking typically requires running your own node and meeting higher minimum token requirements. For example, Ethereum (ETH) requires 32 Ether. Staking pools allow users to combine smaller assets for broader participation.
Service providers can offer "ancillary services" to crypto asset owners. These services should fall under administrative or transactional categories and must not involve entrepreneurial or managerial efforts:
Slashing Coverage: Service providers may offer compensation for losses due to slashing, similar to risk coverage in financial services, to cover losses caused by node operator errors.
Early Unbonding: Protocols may return assets to owners before the official unlocking period ends, shortening the waiting period.
Flexible Rewards Schedules: Project teams may distribute staking rewards according to a schedule or frequency different from that of the protocol itself, but must not promise or guarantee returns beyond what the protocol stipulates.
Asset Aggregation: Protocols may aggregate owners' assets to meet minimum staking thresholds, which is considered an administrative step in the validation process, supporting staking activities rather than entrepreneurial activities.
The SEC's recent guidelines on protocol staking provide clear support for multiple stakeholders within the PoS ecosystem.
Key benefits include:
Validators and Node Operators: Currently, validators and node operators can stake assets and earn rewards without the need to register under securities laws. This clarity significantly reduces the legal risks for individual stakers and professional operators in networks like Ethereum, XDC, and Cosmos.
PoS Network Developers and Protocol Teams: The new guidelines clarify that protocol staking is not considered an investment contract, thereby recognizing the design model of PoS networks. Developers can advance project development without adjusting token economic models or compliance structures.
Custodial Service Providers: Cryptocurrency exchanges and platforms providing custodial staking services can operate legally and compliantly by clearly disclosing relevant terms and isolating assets in non-speculative accounts.
Retail Investors and Institutional Participants: Whether individuals or delegated staking, investors can participate in a more certain environment. This transparency also attracts compliance-oriented institutions to actively enter the PoS ecosystem.
These regulatory measures are expected to promote broader participation in staking, increasing the number and diversity of validators, thereby enhancing the security and decentralization of PoS blockchains.
Did you know? The concept of "staking" can be traced back to 2012, originating from the first PoS blockchain, Peercoin. Unlike mining, staking allows users to "pledge" tokens to validate transactions, incentivizing modern networks like Ethereum's consensus layer and Cardano to prioritize energy efficiency and broad participation.
Although the SEC's latest guidelines facilitate protocol-related staking activities linked to network consensus, they also clearly delineate the boundaries between compliant staking and investment contract activities. The following behaviors remain outside the scope of these guidelines:
Yield Farming or Staking Programs Unrelated to Consensus: Depositing tokens into pools that do not participate in blockchain validation or network security to earn returns is still subject to securities regulations.
Bundled, Opaque, and Promised Return DeFi Staking Products: Platforms offering complex structures, unclear sources of rewards, or promising capital preservation/fixed returns will still face regulatory scrutiny.
Centralized Platforms Masking Lending Activities as "Staking": If services involve third-party investments or lending user funds to earn returns but are labeled as "staking," they do not comply with the new regulations and may be considered unregistered securities.
This statement primarily addresses protocol-level staking, not all derivative forms. For example, staking-as-a-service, liquid staking, re-staking, or liquidity re-staking are not included in these guidelines. Node operators may typically allocate rewards or charge service fees independently based on non-protocol methods.
On the Kraken platform, users can stake Bitcoin through the integrated Babylon DeFi protocol and earn rewards. Babylon allows Bitcoin to provide security for PoS networks without wrapping, cross-chain bridging, or lending services. Currently, this feature is available to Kraken users in the U.S. (with some states not applicable), the U.K., Australia, and the UAE.
Here are the main mechanisms for staking Bitcoin through the Babylon Protocol:
No wrapping or lending is required; your BTC always remains on the Bitcoin mainnet.
Your BTC will be periodically locked using native Bitcoin scripts (Tapscript) to provide security for PoS chains like Ethereum, Solana, or Avalanche.
Staking rewards are distributed in Babylon's native token, BABY, with an annual return rate of up to 1%, settled weekly, and rewards are not issued in BTC.
The steps to stake BTC on the Kraken platform through Babylon are as follows:
Step 1 – Deposit Bitcoin on Kraken: You need to hold BTC in your Kraken account. If you do not have any, you can purchase directly on the platform or transfer from an external wallet.
Step 2 – Go to the Staking Section: Open the Kraken dashboard. If eligible, the system will display the Bitcoin staking option.
Step 3 – Stake BTC: Select the amount of BTC you wish to stake, and after confirming the operation, your BTC will be periodically locked and officially participate in the Babylon delegation process.
Step 4 – Reward Management: You will receive BABY token rewards weekly, which you can choose to hold, trade, or use within the Babylon ecosystem.
Step 5 – Unstaking Process: During the 7-day unlocking period, no rewards can be earned. After the unlocking period ends, your BTC will be automatically released.
With the SEC officially recognizing protocol-level staking as not constituting securities activities, participants and service providers should take compliance measures to ensure legal operations. These practices help enhance transparency, protect user rights, and reduce regulatory risks.
According to SEC guidelines, best practices for compliant cryptocurrency staking in 2025 include:
Ensure staking directly participates in network consensus: Staking should only be conducted through participation in blockchain validation, and investment rewards should be automatically obtained through the protocol, rather than relying on management operations or investment-like behaviors.
Maintain transparency in custodial arrangements: Custodians must clearly disclose asset ownership and must not use custodial assets for cryptocurrency trading or lending, only acting as staking agents.
Consult legal advisors before launching staking services: Legal advice should be sought to ensure that staking services have an administrative nature and fully comply with SEC requirements.
Avoid promising fixed or guaranteed returns: Returns should be determined by the protocol mechanism to avoid being classified as investment contracts under the Howey test.
Use standardized, clear disclosure and contract documents: Clearly outline user rights, asset usage, fees, and custodial terms to prevent ambiguity.
Following the above guidelines ensures that staking activities are compliant and transparent, fully reflecting the SEC's emphasis on the principle of consensus participation.
Did you know? By staking tokens like Cosmos or Tezos, you can earn an annual return of 5%-20%, providing passive income for cryptocurrency holders. Compared to trading, staking operations are simpler—just lock up your tokens, support the network, and receive rewards regularly, making it a popular choice for long-term investors. In 2025, the guidelines issued by the U.S. Securities and Exchange Commission (SEC) are seen as a key turning point in the U.S. cryptocurrency staking landscape, providing clear compliance rules for PoS protocol staking activities. The guidelines clearly distinguish between protocol staking used to support network consensus and yield-generating products classified as investment contracts.
The U.S. Securities and Exchange Commission has confirmed that self-staking, self-custodied staking, and certain specific custodial arrangements do not constitute securities issuance, addressing a major legal uncertainty that has long troubled market participants.
Under this regulatory framework, individual validators and users can delegate tokens to third-party node operators, as long as they maintain control or ownership of the assets at all times. The Commission views staking rewards as service compensation rather than profits derived from management activities, thus exempting them from the Howey test standard.
This guideline lays a solid foundation for compliant staking infrastructure, expected to drive institutional participation, promote innovation in staking services, and attract more retail investors.
By emphasizing transparency, self-custody, and collaboration with decentralized networks, the SEC's approach helps foster the healthy development of the PoS ecosystem while curbing high-risk or opaque staking behaviors. This regulatory recognition is extremely important and timely for the U.S. cryptocurrency industry.
Related: Bitcoin (BTC) storage disclosure data leak exposes information of 27,000 customers.
Original text: “How to Legally Participate in Cryptocurrency Staking Under SEC's New Rules in 2025”
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