US SEC full text: PoS network some staking is not securities without registration

Source: [US SEC Finance Department](https://www.sec.gov/newsroom/speeches- statements/statement-certain-protocol-staking-activities-052925) ; Translated by: AIMan@Golden Finance

introduction

To clarify the applicability of the federal securities laws to crypto assets more clearly, [1] The U.S. Department of Corporate Finance (DFI) is commenting on certain activities known as “staking” in networks with Proof of Stake (PoS) as a consensus mechanism (“PoS network”). [2]. Specifically, this statement is directed to pledge crypto assets inherently associated with the programmatic operations of public, license-free networks, which are used to participate in consensus mechanisms of such networks and/or obtained by participation in consensus mechanisms of such networks, or to maintain the technical operation and security of such networks and/or obtained by maintaining the technical operation and security of such networks. In this statement, we refer to these crypto assets as “Covered Crypto Assets” [3] and refer to their staking on the PoS network as “Protocol Staking.”

Agreement pledge

The network relies on cryptography and economic mechanism design to reduce dependence on designated trusted intermediaries, thereby verifying network transactions and providing settlement guarantees to users. The operation of each network is managed by the underlying software protocol, which consists of computer code that programmatically executes certain network rules, technical requirements, and reward allocations. Each protocol contains a "consensus mechanism" that enables a distributed network composed of irrelevant computers (called "nodes") that maintain a point-to-point network to agree on the "state" of the network (or authoritative records of network address ownership balances, transactions, smart contract codes, and other data). Public, permissionless networks allow users to participate in the operation of the network, including verifying new transactions based on the network's consensus mechanism.

PoS is a consensus mechanism used to demonstrate that the node operators involved in the network (“node operators”) contribute value to the network, and in some cases, these values ​​may be forfeited if they act dishonestly. [4] In a PoS network, the node operator must pledge the network's covered crypto assets so that they are selected programmatically by the underlying software protocol of the network to verify new data blocks and update network status. Once selected, the node operator will act as a "verifier". In exchange for providing verification services, verifiers will receive two types of “rewards”: (1) newly minted (or created) covered crypto assets, programmatically allocated by the network to the verifiers according to its underlying software protocol; and (2) parties seeking to add their transactions to the network to cover a percentage of transaction fees paid by the crypto assets. [5]

In a PoS network, node operators must commit or “stake” protected crypto assets to be eligible for verification and rewards, which is usually achieved through smart contracts. A smart contract is an automatically executed program that automatically performs the operations required in online transactions. During the pledge period, protected crypto assets will be "locked" and cannot be transferred for a period of time under the terms of the applicable agreement. [6] The verifier will not possess or control the staked protected crypto assets, which means that the ownership and control of the protected crypto assets will not change during the stake.

The underlying software protocol for each PoS network contains rules for running and maintaining the PoS network, including a method of selecting a validator in the node operator. Some protocols stipulate random selection of verifiers, while others adopt specific criteria to select verifiers, such as the number of protected crypto assets pledged by the node operator. The protocol may also contain rules designed to block behaviors that endanger network security and integrity, such as validating invalid blocks or double signatures (when a validator tries to add the same transaction to the network multiple times, it will actually use the same crypto asset multiple times). [7]

The rewards of protocol staking provide financial incentives for participants to use their covered crypto assets to maintain security of the PoS network and ensure that it continues to operate. The increase in the number of crypto assets covered by staking can improve the security of the PoS network and reduce the risk of malicious parties controlling most crypto assets. After a malicious party controls these assets, it can manipulate the PoS network by affecting transaction verification and possibly tampering with the network transaction history.

Holders of covered crypto assets can receive rewards by acting as node operators and pledging the covered crypto assets they hold. When pledging by itself (or alone), the holder always has ownership and control over its covered crypto assets and the encryption private key.

Alternatively, the owner of the covered crypto assets can participate in the PoS network verification process by performing self-hosted stakes directly to the third party without having to run its own nodes. Covered crypto asset owners grant their verification rights to third-party node operators. [8] When using third-party node operators, the owner of the covered crypto assets will receive a partial reward, and the provider will also receive a partial reward for its services in the verification transaction. When performing self- custodial pledges directly to third parties, the owner of the crypto asset reserves ownership and control over its crypto assets and its private keys.

In addition to self-private (or individually) and direct self-hosted pledge with third parties, the third form of agreement pledge is the so-called "custodial" pledge, which means that the owner's crypto assets are kept by a third party (the "custodian") and assisting the owner in the pledge on behalf of the owner. When the owner deposits his crypto assets into the custodian, the custodian stores the deposited crypto assets in the digital "wallet" it controls. The custodian pledges crypto assets on behalf of the owner to obtain the agreed reward share by using nodes operated by the custodian or through a third-party node operator that it chooses. During the pledge process, the deposited crypto assets are always controlled by the custodian, and the owner of the crypto asset should retain ownership of the crypto assets held by the custodian. [9] In addition, deposited crypto assets: (1) the custodian shall not use them for operational or general business purposes; (2) shall not lend, pledge or re-mortgage for any reason; (3) shall be held in a manner free from third-party claims. For this purpose, the custodian shall not use deposited crypto assets for leverage, trading, speculation or discretionary activities.

SEC's view on protocol staking activities

The SEC Company Finance Department believes that the “Agreement Pledge Activity” (defined below) related to Agreement Pledge does not involve the issuance and sale of securities as defined in Section 2(a)(1) of the Securities Act 1933 (referred to as the Securities Act”) or Section 3(a)(10) of the Securities Exchange Act 1934 (referred to as the Exchange Act”). [10] Therefore, the Department believes that participants in agreement pledge activities do not need to register transactions with the SEC under the Securities Act, nor do they need to comply with the registration exemption clauses related to these agreement pledge activities as stipulated in the Securities Act.

Agreement pledge activities covered by this statement

The SEC Company Finance Department's viewpoint involves the following agreement pledge activities and transactions (“Agreement pledge activities” and each “Agreement pledge activities”):

• Pledge crypto assets on the PoS network;

• Activities carried out by third parties involved in the staking process of agreements—including but not limited to third-party node operators, validators, custodians, representatives and nominees (“service providers”)—including their roles in earning and distributing rewards; and

• Provide ancillary services (defined below).

This statement only relates to agreement pledge activities related to the following types of agreement pledges.

• Self-staking (or separate) pledge refers to the node operator using its own resources to pledge crypto assets owned and controlled by it. Node operators may jointly operate nodes by one or more people and pledge their crypto assets.

• Directly conduct self-custodial pledge with a third party, which involves the node operator being granted the crypto asset owner's verification rights under the terms of the agreement. Reward payments can flow directly from the PoS network to the crypto asset owners or indirectly through the node operators.

• Custody arrangement refers to the custodian pledging the crypto assets it holds on behalf of the owner of the crypto assets it holds. For example, a crypto asset trading platform that holds deposited crypto assets for a customer can pledge such crypto assets on behalf of the customer on a PoS network that allows the customer to entrust and with the customer's consent. The custodian will use his or her own node or select a third-party node operator to pledge the deposited crypto assets. In the latter case, this choice is the only decision of the custodian during the staking process.

Discussion on agreement pledge activities

Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act respectively define "securities" by listing various financial instruments, including "stocks", "notes" and "bonds" . Since crypto assets do not constitute any financial instruments explicitly listed in the definition of “securities”, we analyze certain transactions involving crypto assets in the context of agreement pledges, based on the “investment contract” tests stipulated in the SEC v. WJ Howey Company. [11] The “Ouvian Test” is used to analyze arrangements or tools not listed in these statutory provisions based on its “economic reality.” [12]

When evaluating the economic reality of a transaction, the test criterion is whether there is a capital investment in a common enterprise, and the investment is premised on the reasonable expectation that the profit will come from the entrepreneurial or management efforts of others. [13] Since the Pride case, the federal court has explained that the “other efforts” requirements in the Howe case are met when “the efforts made by others other than investors are undeniable important efforts and are key management efforts that affect the success or failure of a business.” [14] The federal court also pointed out that administrative and management activities do not belong to management or entrepreneurial efforts that meet the "other efforts" standards in the Ouvian case. [15]

Self-pled (or individually)

The node operator does not make profits from the entrepreneurship or management of others based on reasonable expectations. Instead, node operators contribute their own resources and pledge their own crypto assets, thus protecting the PoS network and facilitating the network operation by validating new blocks, thus qualifying them to receive rewards under the underlying software protocol of the PoS network. In order to receive the reward, the node operator's activities must comply with the protocol rules. By pledging its own crypto assets and participating in the pledge of the agreement, the node operator is simply engaged in an administrative or administrative activity to protect the PoS network and facilitate its operation. Node operators’ expectations for rewards do not stem from the management or entrepreneurship work of any third party on which the PoS network is successful. Instead, the expected economic incentives of the agreement are solely derived from administrative or administrative actions of the agreement pledge. Therefore, the reward is a fee paid to the node operator in exchange for the services it provides to the network, rather than the profits gained from the entrepreneurial or management efforts of others.

Directly conduct self-hosted pledge with third parties

Similarly, if the owner of the crypto asset grants its verification rights to the node operator, the crypto asset owner does not expect to make profits from the startup or management of others. The services provided by node operators to crypto asset owners are administrative or managed in nature, not entrepreneurial or managed for reasons as mentioned above, related to self- staking (or individually) pledges. Whether the node operator pledges its own crypto assets or obtains verification rights from other crypto assets owners will not change the nature of the protocol pledge to meet the purposes of Howie Analysis. In either case, agreement pledge remains an administrative or administrative activity, and the expected financial incentives are solely derived from such activities, rather than the success of PoS networks or other third parties. Furthermore, the Node Operator does not guarantee or otherwise set or fix the amount of rewards to be paid to the owner of the crypto asset, but the Node Operator may deduct its fees (whether it is a fixed fee or a percentage of the amount).

Hosting arrangements

In a custodial arrangement, the custodian (regardless of being a node operator or not) does not provide corporate or administrative work to the crypto asset owners who provide this service. These arrangements are similar to the arrangement discussed above, where the crypto asset owner grants its right to verification to a third party, but they also involve the custody of the crypto assets granted by the owner to the crypto assets it holds. The custodian will not decide whether, when, or how much owners' crypto assets are pledged. The custodian simply acts as an agent and pledges the stored crypto assets on behalf of the owner. [16] In addition, the custodian's custodial crypto assets, in some cases, are not sufficient to meet the "oiler's efforts" requirements, because these activities are administrative or departmental in nature and do not involve management or corporate work. Furthermore, the Trustee does not warrant or otherwise set or fix the amount of rewards to be paid to the owner of the crypto asset, but the Trustee may deduct its fees (whether fixed or a percentage of the amount) from that amount.

Auxiliary Services

Service Providers may provide the following services (“Ancillary Services”) related to agreement pledges to crypto assets holders. These auxiliary services are only administrative or management-based and do not involve corporate or management work. They are part of a general activity (a pledge of agreements) which itself is not of an enterprise or management nature.

• Slashing Coverage, the service provider will compensate or compensate the pledged user for losses suffered by the confiscation. This protection against node operator errors is similar to the protection provided by service providers in many traditional commercial transactions.

• Unbind early, and the service provider allows the returned crypto assets covered to the owner before the end of the agreement unbind period. [17] This service only shortens the effective unbinding period of the agreement, and provides convenience for crypto asset owners by reducing the burden of the unbinding period.

• In place of reward payment schedules and amounts, the service provider pays the rewards at a pace and amount different from the schedule set by the agreement, and/or the reward payment is earlier or lower than the frequency of the agreement granted, provided that the reward amount is not fixed, guaranteed, or higher than the amount granted by the agreement. Similar to early unbinding, this is just an optional convenience for crypto asset holders in relation to reward allocation and issuance management.

• Aggregate crypto assets, service providers provide crypto asset holders with the ability to aggregate their crypto assets to meet the minimum pledge requirements of the agreement. This service is part of the verification process, which itself is administrative or administrative. There is no doubt that the nature of the crypto assets of the holder to aid in pledging is also administrative or administrative.

Whether provided individually or as a group of services, the service provider does not act in a managed or corporate manner when providing any or all of these services.

[1] For the purposes of this statement, "crypto assets" means assets generated, issued and/or transferred using blockchain or similar distributed ledger technology networks ("crypto networks"), including but not limited to assets referred to as "tokens", "digital assets", "virtual currencies" and "currencies" and these assets rely on crypto protocols. Furthermore, for the purposes of this statement, "network" refers to an encrypted network.

[2] This statement represents the views of staff of the Company’s Finance Department (“the Department”). It is not a rule, regulation, guidance or statement of the Securities and Exchange Commission (“the Commission”) that neither approves nor rejects its content. Like all staff statements, this statement has no legal effect: it will not change or amend applicable laws, nor will it create new or additional obligations for anyone.

[3] This statement is only for certain activities involving covering crypto assets that do not have inherent economic attributes or rights, such as the right to generate passive income or transfer future income, profits or assets of the company.

[4] This statement is for agreement staking only, not all variations thereof. In addition, this statement does not cover all forms of "staking", such as the so-called "liquidity pledge", "re-staking" or "re-staking" of "liquidity pledge". The specific pledge activities covered by this statement will be discussed below in the “Agreed pledge activities covered by this statement”.

[5] Although the agreement sets out reward rules, node operators are usually free to share rewards or charge service fees in a different way than those specified in the agreement. Certain protocols allow node operators to propose and receive rewards that are different from the protocol standard rewards.

[6] The minimum stake or lock-up period varies from PoS protocol.

[7] If the node operator or validator participates in such harmful activities or fails to comply with the technical requirements of the PoS network, its pledged crypto assets may be forfeited or “cut”.

[8] On some PoS networks, the owner of a protected crypto asset can pledge their protected crypto assets and obtain verification rights granted to a third party, allowing the third party to use the pledged protected crypto assets to verify transactions on the PoS network on behalf of the owner. For example, some PoS networks may achieve this by allowing protected crypto asset owners to “delegate” their verification rights to node operators. In this case, the node operator acts as the so-called "principal" in the pledge process. Other PoS networks may use so-called “nominators”, and the owner of a protected crypto asset can grant its verification rights to the nominee, who chooses the verifier on behalf of the owner of the protected crypto asset.

[9] The custodian usually enters an agreement with the owner, such as a user agreement or terms of service, which stipulates that the owner retains ownership of the covered crypto assets.

[10] The Department's view is not a decisive factor in whether any particular agreement pledge activity (as defined below) involves the issuance and sale of securities. The final judgment requires analysis of facts related to the pledge activities of a specific agreement. If the facts differ from those described in this statement, the Department's perceptions of whether a particular agreement pledge activity involves the issuance and sale of securities may vary.

[11] 328 US 293 (1946). We believe that agreement pledges and the “protocol pledge activities” as defined in this statement and the views we express in this statement do not involve notes or other debt certificates, as during the pledge process, the owners covering crypto assets always retain their ownership of their covered crypto assets (whether directly or through the custodian).

[12] See Landreth Timber Co. v. Landreth, 471 US 681, 689 (1985). In this case, the U.S. Supreme Court recommended that determining whether a particular instrument explicitly falls under the definition of “stock” under Section 2(a)(1) of the Securities Act or an appropriate test of other special properties is an economic reality test set forth in Howey’s case. When analyzing whether an instrument is a securities, “form should be ignored and substance should be focused” (Tcherepnin v. Knight, 389 US 332, 336 (1967)), “the emphasis should be placed on the economic reality behind the transaction, rather than the additional name.” United Housing Found., Inc. v. Forman, 421 US 837, 849 (1975).

[13] Forman, 421 US, p. 852.

[14] See, for example, SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (Ninth Circuit Court of Appeals, 1973).

[15] See, for example, First Fin. Fed. Sav. & Loan v. EF Hutton Mortgage, 834 F.2d 685 (8th Cir. 1987) (the activities engaged in are administrative and jurisdictional nature only and therefore do not constitute the management or entrepreneurial conduct of others); Union Planters National Bank of Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174 (6th Cir. 1981) (management of tasks and services is not managed or entrepreneurial conduct under Howey rules). See also Donovan v. GMO-Z.com Trust, 2025 US Dist. LEXIS 27871 (SDNY 2025) (“Governmental, technical and paperwork are often 'necessary' for the operation of investment programs and the resulting profits, but the Court has long held that these efforts are not sufficient under Article 3 of the Ouvian Tax Act.”).

[16] If the custodian does choose whether, when, or the amount of crypto assets of the pledge owner, its activities are outside the scope of this statement.

[17] Pledged regulated crypto assets are subject to a “binding period”, which is set by the agreement, after which the owner of the regulated crypto assets will be eligible for the reward. The "unbinding period" is set by the agreement and is used to "unbond" the time for regulated crypto assets. Each protocol has its own binding period and unbinding period, which can be hours, days, or weeks.