Everstake, a prominent non-custodial staking provider, has engaged with the U.S. Securities and Exchange Commission (SEC) to advocate for a clearer regulatory framework for staking within blockchain networks. This dialogue occurs amidst increasing scrutiny of crypto staking services and seeks to differentiate non-custodial staking from traditional securities offerings.
The core of Everstake’s argument is that non-custodial staking, where users retain complete control over their digital assets, should be considered a technical function, akin to maintaining network infrastructure, rather than an investment product. This perspective challenges the SEC’s potential classification of staking services under existing securities laws.
Key Arguments Presented by Everstake
- User Asset Control: Users maintain full control of their digital assets throughout the staking process; no ownership is transferred.
- Technical Function: Staking is a base-layer protocol mechanism that maintains the integrity and functionality of decentralized networks.
- Absence of Pooled Funds: Non-custodial staking does not involve the pooling of assets, unlike some custodial staking services.
- Permissionless Unstaking: Users can unstake their assets without needing permission from Everstake or other third parties.
- Technical Infrastructure: Everstake provides technical infrastructure to participate in blockchain validation.
Everstake emphasizes that rewards earned through non-custodial staking are algorithmically distributed by the blockchain network itself, based on network-level incentives. This process differs from the expectation of profits from managerial efforts, a key component of the Howey Test, which is used to determine whether an asset qualifies as a security.
The Howey Test and Non-Custodial Staking
Everstake argues that non-custodial staking fails each prong of the Howey Test:
- Investment of Money: Users are not making an investment in a traditional sense, but rather participating in a consensus mechanism.
- Common Enterprise: There is no common enterprise, as users retain control of their assets and delegate only validation rights.
- Expectation of Profits: Rewards are derived from network-level incentives and fluctuate with the market value of the underlying asset, rather than Everstake’s management efforts.
Everstake’s Call for Regulatory Clarity
In a letter to the SEC’s Crypto Task Force, Everstake urged the agency to provide explicit regulatory clarity for non-custodial staking, distinguishing it from custodial and liquid staking models. They argue that treating non-custodial staking as a securities offering would stifle innovation and undermine the decentralized nature of blockchain technology.
Sergii Vasylchuk, founder of Everstake, stated that staking is not a financial instrument but a technical process that maintains the integrity of decentralized networks.
SEC’s Stance and Industry Response
While the SEC has not yet issued definitive guidance on staking, the agency is actively engaging with industry stakeholders, including those involved in non-custodial staking, ETFs, and broader blockchain infrastructure. This engagement suggests a willingness to consider diverse perspectives before establishing a formal regulatory framework.
Several crypto advocacy groups, including the Crypto Council for Innovation (CCI), have also urged the SEC to provide clear regulatory guidance on crypto staking and staking services. This collective effort underscores the industry’s desire for a well-defined legal landscape to foster innovation and protect users.
Impact of Ethereum ETFs on Staking
The approval of Ethereum ETFs in the US could also influence the regulatory landscape for staking. If ETFs are able to stake the ETH they hold, it could push the SEC to provide more regulatory clarity.
The ongoing discussions between Everstake and the SEC represent a crucial step towards establishing a clear and appropriate regulatory framework for crypto staking in the United States. By emphasizing the technical nature of non-custodial staking and highlighting user control over assets, Everstake hopes to differentiate its services from traditional securities offerings and promote continued innovation within the blockchain industry.
