Crypto Coalition Calls for SEC to Recognise Staking as Non-Security

The Crypto Council for Innovation has urged the SEC to classify crypto staking as an essential practice rather than a security. The letter argues that staking, similar to proof-of-work mining, should not be regulated as a security. This appeal comes amidst historical SEC enforcement actions against staking and a shifting regulatory landscape under new leadership.

A coalition of crypto firms, led by the Crypto Council for Innovation (CCI), has formally urged the U.S. Securities and Exchange Commission (SEC) to refrain from regulating cryptocurrency staking. In a recent letter, they argue that staking should be recognised as an invaluable practice within digital markets, falling outside the jurisdiction typically associated with securities. This marks a significant stance shift, especially given the SEC’s history of enforcement actions against staking activities.

The letter advocates for an explicit statement from the SEC clarifying that staking, akin to the treatment of ‘proof-of-work’ (PoW) mining, does not constitute securities activity. Specifically, the coalition highlights that stakers receive rewards not from managerial decisions or profits but rather from outcomes determined by blockchain protocols. They emphasize that this process includes locking up coins to enhance blockchain security, providing technical services rather than simply seeking passive income.

The CCI’s position stands in stark contrast to previous SEC approaches made under former Chairman Gary Gensler, who targeted crypto staking operations aggressively. Notable cases include a high-profile settlement involving Kraken and others like Consensys. Additionally, the SEC’s actions against exchange-traded fund (ETF) applications that incorporate staking mechanisms or Ethereum tracking have further complicated the industry’s regulatory environment.

In their letter, the coalition requests that the SEC issue guidance akin to what has been provided to memecoin and stablecoin issuers, essentially offering a framework to delineate acceptable practices within the crypto landscape. While not legally binding, such guidance could act as a signal pertaining to federal regulatory attitudes, especially as certain state securities regulators pursue enforcement actions regarding staking.

Since Donald Trump took office, there has been a gradual shift in the SEC’s stance toward digital assets, which has been reflected in new leadership. Paul Atkins, the current SEC Chairman, hinted at an openness to reconsider previous regulatory frameworks during a recent crypto-focused roundtable event. Moreover, U.S. senators have echoed similar sentiments, advocating for a reassessment of the SEC’s position on staking in relation to spot ETFs in February.

This ongoing push for clarity and optimism stems from a sense that the regulatory environment should genuinely support innovation while respecting the limits of securities laws. However, with varying opinions even among state regulators, it remains critical for the SEC to establish comprehensive and clear guidance on staking as the industry continues to evolve.