The crypto industry welcomes the latest guidance from the Securities and Exchange Commission on liquid staking as a rare regulatory victory, and stakeholders call it a major step forward in the institutional adoption of decentralized finance and digital assets.
Released Tuesday, SEC staff issued guidance on staking of liquids, writing that under certain conditions, liquid staking activity and the receipt tokens generated do not constitute a security offer.
“Institutions are now able to confidently integrate LST into their products, ensuring they will drive new revenue streams, expand their customer base and enable the creation of a secondary market for piling assets.”
The decision sets the stages of a wave of new products and services that will accelerate mainstream participation in the digital asset market. ”
Crypto companies are seeking regulatory guidance from the SEC on liquid tokens. On Thursday, a group of Solana stakeholders wrote to the SEC asking for participation in exchange trade funds.
Liquid staking is the process of depositing crypto assets with a third-party provider and receiving a staking receipt token in return. These receipt tokens can be traded or used in Defi without waiting for a staking fund.
“Today’s guidance on Liquid Staking demonstrates the same nuanced understanding of LST technology exhibited by the Crypto Task Force on this topic in February,” Jito Labs CEO Lucas Bruder told Cointelegraph.
Despite clear support from the crypto industry, the SEC’s liquidity guidance has attracted criticism from within the institution. Commissioner Caroline Crenshaw issued a sharp objection, warning that the statement relied on volatile assumptions and provided little regulatory certainty.
Related: What is liquid staking and how does it work?
Liquid staking activities based on Howey Test
“The SEC makes clear that securities are not involved in certain liquid staking activities and therefore does not need to be registered,” said Katharine Dowling, Bitwise’s general counsel and chief compliance officer.
Whether an activity is likely to rely on a critical component of Howey Test is a legal standard used to determine whether an asset or transaction constitutes a security offer.
According to the agency, liquid staking providers may not cause securities registration requirements, such as performing only “management or ministerial” functions, such as issuing tokens representing ownership of piling assets.
This includes issuing a “staking receipt token.” This is a way for the SEC to refer to the cryptocurrency that depositors receive to infiltrate the cryptocurrency.
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“In assessing the economic realities of transactions, the test is whether it assumes that it comes from another person’s entrepreneur or management efforts to a common company that assumes reasonable expectations of profit,” the SEC writes.
A wave of institutional adoption can help retailers and impact the delivery of Defi services. “Retail platforms can attract more users by providing seamless access to staking rewards without lock-up constraints, but the broader ecosystem can benefit from increased liquidity and innovation,” Schmiett said.
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