SEC Drops Bombshell: Liquid Staking Tokens Escape Security Classification
The crypto industry just scored a major regulatory win—and Wall Street's compliance officers are already reaching for the antacids.
In a move that sent shockwaves through DeFi, the SEC confirmed today that liquid staking activities and their associated tokens won't be treated as securities. The decision effectively greenlights a $50B+ sector that traditional finance has been side-eyeing for years.
Key implications:
- Protocol tokens avoid Howey Test scrutiny (for now)
- Staking derivatives get institutional runway
- Kraken's legal team pops champagne
Of course, this being crypto, the ruling comes with enough regulatory fine print to keep 10,000 lawyers employed through the next bull run. The SEC notably avoided commenting on whether staking rewards constitute dividends—leaving just enough ambiguity for future enforcement actions.
Meanwhile in TradFi land, bankers are suddenly 'discovering' the revolutionary potential of blockchain-based yield instruments. Funny how that works.
Staking Providers Not Entrepreneurial
Liquid staking allows crypto holders to deposit their assets with a provider or in a DeFi protocol and receive the equivalent in staking tokens.
These tokens represent ownership of the deposited crypto, plus any staking rewards, while allowing holders to maintain liquidity without withdrawing from staking. They can also be used as collateral or in other cryptocurrency applications.
Ethereum liquid staking platform Lido is one of the largest, issuing stETH tokens for staked ETH. It currently has almost 8.9 million ETH staked worth around $32 billion.
The SEC defined staking tokens as ‘receipts’ for the assets staked. “A Staking Receipt Token is not a receipt for a security because the deposited Covered Crypto Asset is not a security,” it stated.
Using the Howey test for investment contracts, the SEC determined that liquid staking providers only perform administrative functions rather than “entrepreneurial or managerial” efforts. They act as agents facilitating staking rather than making investment decisions, and don’t guarantee returns.
However, if staking providers engage in more complex entrepreneurial activities beyond basic staking services, securities laws may still apply.
Last Hurdle for Staking ETFs
ETF expert Nate Geraci opined that this is the “last hurdle in order for the SEC to approve staking in spot ETH ETFs.”
He added that the reason was that liquid staking tokens will be used to help manage liquidity in spot Ether ETFs, “something that was a concern for the SEC.”
SEC says certain liquid staking tokens are NOT securities…
Think last hurdle in order for SEC to approve staking in spot eth ETFs.
The reason?
Liquid staking tokens will be used to help manage liquidity w/in spot eth ETFs, something that was a concern for SEC. pic.twitter.com/tKJbEoQVNp
— Nate Geraci (@NateGeraci) August 5, 2025
BlackRock filed for a staked Ether ETF in July, which, if approved, WOULD enable it to offer additional yields to investors.
Crypto analysts are largely in agreement that if staking Ether ETFs are given the green light, it could send ETH into new price discovery and to a new all-time high.
