The U.S. Securities and Exchange Commission (SEC) is currently reviewing the regulatory framework surrounding staking in blockchain networks, with Everstake, a leading non-custodial staking provider, actively defending its position. The discussions come at a time when over $193 billion in digital assets are staked across various proof-of-stake networks, highlighting the need for clearer guidelines in this evolving sector.
Key Takeaways
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Everstake argues that non-custodial staking should not be classified as a securities transaction.
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Users retain full control of their digital assets during the staking process.
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The SEC is seeking input from industry stakeholders to clarify regulations.
Everstake's Position on Non-Custodial Staking
During a recent meeting with the SEC’s Crypto Task Force, Everstake emphasized that non-custodial staking is fundamentally different from traditional securities transactions. The company asserts that:
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User Control: Participants maintain ownership of their assets and do not transfer them to a third party.
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Technical Function: Staking is described as a technical process essential for maintaining decentralized networks, rather than an investment product.
Sergii Vasylchuk, founder of Everstake, stated, "Our main assertion is that staking is not a financial instrument or security transaction, but rather a technical process, akin to an oracle in a database."
Request for Regulatory Clarity
In a letter submitted to the SEC, Everstake called for clearer regulations regarding both non-custodial and custodial staking models. The company responded to Commissioner Hester Peirce’s request for input on the regulatory treatment of blockchain services, arguing that non-custodial staking should not be classified as a securities offering. Key points from their argument include:
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No Pooling of Assets: Users do not pool their assets or expect profits from managerial efforts.
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Delegation of Rights: Users delegate only validation rights while retaining ownership of their digital assets.
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Algorithmic Rewards: Staking rewards are distributed by the blockchain network itself, not by Everstake.
The Howey Test and Non-Custodial Staking
Everstake's letter also detailed how non-custodial staking fails the Howey test, which is used to determine whether certain transactions qualify as investment contracts. The company highlighted that:
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Users do not invest money in a common enterprise.
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There is no expectation of profits from Everstake’s efforts.
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Financial returns are not dependent on the company’s management.
Instead, rewards are derived from network-level incentives and fluctuate with the market value of the underlying asset.
Proposed Criteria for Exemption
Everstake proposed specific criteria that should exempt non-custodial staking from being classified as a security. These criteria include:
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User Asset Control: Users must maintain control over their assets.
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Absence of Pooled Funds: No pooling of funds should occur.
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Permissionless Unstaking: Users should be able to unstake their assets freely.
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Provision of Technical Services: The service provided should be purely technical in nature.
The company likened non-custodial staking to proof-of-work mining, which the SEC has previously ruled out as a securities transaction.
Ongoing SEC Engagement
Despite Everstake's arguments, the SEC has not yet provided a definitive stance on the matter. The agency continues to engage with various stakeholders, including those involved in non-custodial staking and broader blockchain infrastructure, to gather input on regulatory guidance.
In a recent letter, nearly 30 crypto advocacy groups, led by the Crypto Council for Innovation, urged the SEC to provide clear regulatory guidance on crypto staking and related services. As the landscape of digital assets continues to evolve, the outcome of these discussions could significantly impact the future of staking in the U.S.
Sources
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Everstake defends non-custodial staking as SEC weighs industry input, Cointelegraph.
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