SEC Official Sounds Alarm: Liquid Staking Rules Create Chaos, Spark Lehman-Level Systemic Risks

Regulatory whiplash hits crypto again—this time targeting the $128B liquid staking sector. The SEC's latest 'guidance' looks more like a grenade tossed into DeFi's engine room.

When bureaucrats 'clarify,' markets tremble

The warning shot compares today's crypto innovations to 2008's toxic financial engineering. Never mind that smart contracts don't take bailouts or hide losses in Cayman shell games.

Staking providers now face impossible compliance puzzles. Lock up tokens to secure blockchains? Regulators call it a security. Offer liquid derivatives? That's rehypothecation—apparently worse when it's on-chain.

The irony? Traditional finance still runs on 100x leverage and opaque repo markets. But sure, target the transparent protocols actually solving these problems.

Lehman-like risks in crypto staking

Adding to the concerns, Amanda Fischer, a former SEC Chief of Staff under Gary Gensler, drew parallels between liquid staking and the risky financial practices that led to Lehman Brothers’ collapse in 2008.

In a post on X (formerly Twitter), Fischer warned that liquid staking could expose crypto markets to cascading failures. She explained that the practice allows users to deposit digital assets and receive a synthetic version of the same token, which can be reused to earn additional rewards.

According to Fischer, this mirrors how Lehman reused client assets to back high-risk trades. She argued that liquid staking could replicate the same vulnerabilities without strong regulatory oversight.

The former SEC official also highlighted the risks of relying on token issuers, the possibility of long delays when unstaking, and the threat of technical failures or hacks. Together, these factors could amplify systemic risk across the crypto sector.