SEC Clarifies Protocol Staking Is Not a Security

TLDR: The SEC has clarified that protocol staking is not a securities transaction under U.S. law when performed under certain conditions. This removes a significant source of regulatory uncertainty and affirms that staking is a compliant way to participate in proof-of-stake networks.

A Milestone for Proof-of-Stake Networks

The SEC’s Division of Corporation Finance issued a statement clarifying the regulatory status of protocol staking. The guidance confirms that when certain conditions are met, protocol staking activities such as self-staking, delegated staking, and staking through custodial providers do not constitute an “offer or sale” of securities under U.S. law. For digital asset holders, service providers, and blockchain networks operating on proof-of-stake consensus, staking is not considered a securities transaction.

Legal Reasoning Behind the Guidance

According to the SEC’s statement, protocol staking does not meet the definition of an investment contract under the Howey Test. That test, which determines whether an arrangement qualifies as a security, requires that profits be derived primarily from the “efforts of others.”

In the case of staking, rewards are earned by participants who validate transactions and maintain consensus within the protocol’s rules. This form of participation is technical, not managerial. Because of this distinction, staking now falls outside the boundaries of securities regulation.

Key Terms and Scope

The SEC’s statement also introduced definitions to clarify what qualifies under the new guidance. “Covered Crypto Assets” are tokens used to secure a proof-of-stake network. These assets do not confer ownership rights, passive income, or entitlements to business profits. Instead, rewards are earned by contributing to network operations following the protocol’s predetermined rules. The SEC defined “Protocol Staking Activities” as validating transactions, proposing blocks, and operating validator nodes.

They also clarified administrative services that support staking, such as early unbonding, slashing protection, or reward aggregation. These services were deemed non-managerial and outside the scope of what the SEC might consider an investment contract because they do not alter the nature of staking as a technical contribution.

What It Means for U.S. Token Holders

For American digital asset holders, this announcement affirms that individuals can participate in staking activities without being classified as securities investors. Whether they choose to stake independently, delegate through a validator, or use a custodial provider, they are not engaging in a regulated securities transaction under current law. This reduces compliance risk for retail and institutional participants and removes uncertainty for anyone looking to earn network-native rewards.

It also distinguishes staking from other types of crypto-based yield generation. Products that pool assets, rely on active management, or involve the promise of profit through the labor of a third party may still fall under securities regulation. Staking, by contrast, is now recognized as fundamentally different.

Implications for the Broader Ecosystem

This clarification will likely have ripple effects across the digital asset industry. The guidance offers a more transparent framework for staking providers, custodians, and exchanges. Platforms can now build and offer staking services with a more substantial degree of regulatory confidence. For institutional players, the reduced legal ambiguity may make staking a more viable component of portfolio strategy or custody infrastructure.

At the same time, the SEC drew a firm boundary around the guidance. The statement excludes complex arrangements like liquid staking, restaking, or derivative staking products. These structures often introduce financial engineering and counterparty dynamics that differ significantly from protocol-native staking. Because of that, they remain outside the scope of this guidance and may still be subject to the SEC’s scrutiny.

A Step Toward Regulatory Maturity

While not a formal rule or legislative change, the SEC’s May 2025 statement reinforces a growing willingness from the current administration to clarify rules in the digital asset industry. Doing so gives industry participants a foundation to build on by strengthening the legitimacy of proof-of-stake networks.

Removing ambiguity around protocol staking affirms staking as a legitimate and compliant mechanism for securing decentralized networks. More explicit rules allow proof-of-stake participation in the United States to advance more confidently and transparently.

BitGo: Your Trusted Partner for Compliant Staking Infrastructure

Institutions need secure and compliant infrastructure as digital asset regulations continue to solidify. BitGo provides institutional-grade staking solutions to meet today’s regulatory expectations without compromising security or scalability.

Whether you want to integrate staking into your product suite or safeguard client assets under a qualified custodial model, BitGo is built for the future of proof-of-stake.

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Ready to explore staking with confidence? Contact BitGo to learn how we can help you build secure, compliant digital asset strategies.