Last month, the Division of Corporation Finance issued a statement to the effect that certain crypto Protocol Staking activities did not involve the offer or sale of securities for purposes of the federal securities laws. Yesterday, Corp Fin issued another statement expressing the same view with respect to “Liquid Staking”:

It is the Division’s view that “Liquid Staking Activities” (as defined below) in connection with Protocol Staking do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). Accordingly, it is the Division’s view that participants in Liquid Staking Activities do not need to register with the Commission transactions under the Securities Act, or fall within one of the Securities Act’s exemptions from registration in connection with these Liquid Staking Activities.

It also is the Division’s view that the offer and sale of Staking Receipt Tokens, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act or Section 3(a)(10) of the Exchange Act, unless the deposited Covered Crypto Assets are part of or subject to an investment contract.

Accordingly, Liquid Staking Providers involved in the process of minting, issuing and redeeming Staking Receipt Tokens, as described in this statement, as well as persons involved in secondary market offers and sales of Staking Receipt Tokens, do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration, unless the deposited Covered Crypto Assets are part of or subject to an investment contract.

I’m not going to pretend that this stuff about “Liquid Staking” and “Staking Receipt Tokens” is anything other than complete gibberish to me, but just in case some of you are also a bit mystified, I did a little digging to see if I could figure out what Corp Fin is talking about. Here’s what I gleaned from Coinbase’s discussion of the topic on its website. “Protocol Staking” is essentially a way of delegating your crypto to a blockchain network to help the network validate and process crypto transactions. In return for being such a standup crypto bro, you get rewarded with additional crypto.

One of the problems with traditional Protocol Staking activities is that you can’t necessarily get your crypto out of the pool on demand. According to this discussion on Chainlink, Liquid Staking addresses this by issuing a new token that represents a claim on the underlying staked crypto asset and that can be traded or otherwise monetized the same way the underlying asset could be.

Anyway, this is the stuff that Corp Fin seems to be talking about, and to the extent laid out in the statement, they’re cool with it.  That’s not the case with Commissioner Crenshaw, who issued a statement criticizing Corp Fin’s action and suggesting the SEC’s understanding of how Liquid Staking actually works in practice might be on a par with mine.

– John Jenkins