The cryptocurrency industry is celebrating the U.S. Securities and Exchange Commission (SEC) for its latest guidance on liquid staking, viewing it as a rare regulatory victory. Stakeholders are calling it a significant advancement for decentralized finance and institutional adoption of digital assets.
On Tuesday, SEC staff released guidance on liquid staking, stating that under certain conditions, liquid staking activities and the receipt tokens generated do not constitute a securities offering.
"Institutional players can now confidently integrate LSTs into their products, which will undoubtedly drive new revenue streams, expand customer bases, and create secondary markets for staked assets," Mara Schmiedt, CEO of blockchain development company Alluvial, told Cointelegraph.
Cryptocurrency companies have been seeking regulatory guidance from the SEC regarding liquidity tokens. On Thursday, a group of Solana stakeholders wrote to the SEC, advocating for their inclusion in exchange-traded funds.
Liquid staking is the process of depositing crypto assets with third-party providers and receiving staking receipt tokens in return. These receipt tokens can be traded or used in DeFi without waiting for the unstaking of funds.
"Today's guidance on liquid staking reflects the same detailed understanding of LST technology that the crypto working group demonstrated when we met with them on this topic in February," Lucas Bruder, CEO of Jito Labs, told Cointelegraph.
Despite the apparent support from the crypto industry, the SEC's guidance on liquid staking has drawn criticism from within the agency. Commissioner Caroline Crenshaw issued a sharp dissent, warning that the statement relies on unstable assumptions and provides little regulatory certainty.
Katherine Dowling, Bitwise's General Counsel and Chief Compliance Officer, stated, "The SEC has made it clear that certain liquid staking activities do not involve securities and therefore do not require registration."
Whether an activity qualifies may depend on a key element of the Howey test, which is the legal standard used to determine whether an asset or transaction constitutes a securities offering.
According to the agency, liquid staking providers that only perform "administrative or ministerial" functions, such as issuing tokens representing ownership of staked assets, may not trigger securities registration requirements.
This includes those institutions that issue "staking receipt tokens," which is the SEC's term for the crypto assets received by depositors for liquid staking their crypto assets.
"When assessing the economic realities of a transaction, the test standard is whether there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others," the SEC wrote.
This wave of institutional adoption may help retail traders and impact the provision of DeFi services. "Retail platforms will be able to attract more users by offering seamless access to staking rewards without lock-up constraints, while the broader ecosystem benefits from increased liquidity and innovation," Schmiedt said.
Related: GENIUS has established new stablecoin rules, but remains vague on foreign issuers.
Original article: Opinion: SEC's Liquid Staking Token Guidance is a Win for DeFi and Institutions
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