SEC staff liquid-staking guidance leaves regulatory questions, could be contested

The US Securities and Exchange Commission’s latest comments on liquid staking have sparked a mix of optimism and concern, highlighting the regulatory gray area surrounding one of crypto’s fastest-growing sectors.

While some in the industry see the nonbinding guidance as a step forward for institutional and retail adoption, others warn it leaves key legal questions unresolved and could face challenges down the line.

“First, these guidelines are not law… and they could be contested at some point,” Scott Gralnick, head of institutional staking at Marinade, told Cointelegraph.

“The industry needs to continue to work together to forge positive regulatory outcomes. This includes advocating for the market structure legislation that is going to be voted on soon.”

Key to the SEC statement is a disclaimer that it represents the views of a division within the agency, not the agency’s overall position. The disclaimer notes that the statement is “not a rule, regulation, guidance, or statement” of the SEC.

A source familiar with the process told Cointelegraph that staff guidance is not abnormal and lacks a formal vote from the Commission. That doesn’t mean commissioners are unaware of the guidance, however.

Related: What is liquid staking, and how does it work?

More complex products

Liquid staking, which lets users earn staking rewards while keeping their tokens liquid and usable, is more complex than traditional staking. Even among liquid staking protocols, the technical and operational models can vary widely. The SEC staff’s recent guidance may not fully account for these differences.

“This guidance confirms that liquid staking activities are not considered a securities offering,” said Lido Labs Chief Legal Officer Sam Kim. “That said, there are still some open regulatory questions around related areas such as restaking, crosschain staking, and more complex financial products built on top of staking. These areas will still require further regulatory clarification.”

According to SOL Strategies Chief Strategy Officer Michael Hubbard, protocols whose operations are purely administrative or ministerial — issue receipt tokens on a one-for-one basis, allowing users to stake without controlling the timing or amount and avoid guaranteed returns — “may find regularity clarity under this framework.”

“However, the guidance is highly specific in its parameters and emphasizes that any deviation from the described structure could result in different regulatory treatment,” Hubbard told Cointelegraph.

Related: Liquid restaking tokens vs. liquid staking tokens

Issues with taxation

One of the crucial issues the SEC division’s statement left open is the taxation of rewards gained through liquid staking. The rewards would affect ecosystem participants, including stakers, small and large, who report to tax agencies.

“Some questions persist regarding the timing of taxation of staking rewards (whether at receipt or disposition),” Alluvial Chief Operating Officer Evan Weiss said.

“This issue is currently under legal review in active cases, and there is significant ongoing advocacy at the congressional level seeking fair staking taxation treatment to support the industry’s continued development.

Another key issue is the grantor trust tax rules, which govern how assets are taxed when transferred after death. According to Weiss, these rules are the “main regulatory hurdle hindering staking’s integration within exchange-traded funds” and remains an “unresolved matter.”

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