"Everstake Defends Non-Custodial Staking: SEC Regulatory Clarity"

The Importance of Regulatory Clarity in Non-Custodial Staking

Everstake, one of the leading non-custodial staking providers in the world, recently engaged in discussions with the US Securities and Exchange Commission (SEC) regarding clearer regulatory definitions surrounding staking in blockchain networks. This conversation is taking place as the total value of digital assets staked on proof-of-stake networks has surpassed $193 billion.

Despite the significant participation in staking activities, the legal status of staking in the US remains uncertain as regulators grapple with its classification under existing securities laws. In the past, the SEC has taken enforcement actions against major industry players like Kraken, Coinbase, and Consensys over their staking services. However, under the current administration, these actions have been dismissed.

During the meeting with the SEC, Everstake made a case for non-custodial staking not to be treated as a securities transaction. The company emphasized that users retain full control over their assets throughout the staking process and do not transfer ownership to a third party, making staking a technical process rather than an investment product.

Call for Clarity on Regulatory Framework

In a letter sent to the SEC's Crypto Task Force, Everstake urged the agency to provide regulatory clarity on non-custodial staking, as well as custodial and liquid staking models. They argued that non-custodial staking, where users maintain control of their tokens, should not be classified as a securities offering.

According to Everstake, their staking model involves users delegating validation rights while retaining ownership of their assets. The staking rewards are distributed algorithmically by the blockchain network itself, with the company solely providing technical infrastructure.

Non-Custodial Staking and the Howey Test

Everstake's letter also outlined why non-custodial staking does not meet the criteria of the Howey test, a legal test used to determine whether a transaction qualifies as an investment contract. Users of non-custodial staking services do not make investments in a common enterprise, do not expect profits from the efforts of a third party, and are not reliant on a central entity for financial gains.

The company proposed specific criteria that should exempt non-custodial staking from securities classification, such as user control of assets, absence of pooled funds, permissionless unstaking, and the provision of technical services only. They drew parallels between non-custodial staking and proof-of-work mining, which the SEC has previously ruled out as a securities offering.

According to Margaret Rosenfeld, Everstake's chief legal officer, treating non-custodial staking as a securities offering could stifle innovation in the blockchain sector and undermine the decentralized nature of the technology.

Industry Advocacy for Clarity

The SEC has not yet provided definitive guidance on the classification of staking activities. However, the agency continues to engage with industry stakeholders to gather input on the matter. Various crypto advocacy groups have called for clear regulatory guidance on crypto staking and related services, urging the SEC to provide clarity to ensure the continued growth and development of the blockchain ecosystem.

As the industry awaits further guidance from regulators, stakeholders like Everstake are proactively advocating for a regulatory framework that supports innovation and fosters the growth of decentralized technologies.