Everstake defends non-custodial staking as SEC weighs industry input

Everstake, a leading non-custodial staking provider, is engaging with the US Securities and Exchange Commission (SEC) to clarify the regulatory landscape surrounding blockchain staking. This follows previous SEC actions against companies like Kraken and Coinbase for their staking services, actions which have since been dismissed under the current administration. With over $193 billion in digital assets staked across various proof-of-stake (PoS) networks, the legal status of staking remains uncertain.

Everstake contends that non-custodial staking should not be classified as a securities transaction. Their argument centers on the fact that users retain complete control of their assets throughout the process, unlike traditional investment models. They emphasize that staking is a technical function vital to maintaining the integrity of decentralized networks, not an investment product generating profits from managerial efforts. This assertion is supported by the fact that staking rewards are algorithmically distributed by the blockchain network itself, with Everstake only providing the technical infrastructure.

In a letter to the SEC’s Crypto Task Force, Everstake detailed why non-custodial staking doesn’t meet the criteria of the Howey test, a key legal framework for determining securities. Users don’t invest money in a common enterprise, nor do they expect profits based on Everstake’s management. Rewards are directly tied to network incentives and the market value of the staked asset. Everstake proposed specific criteria for exempting non-custodial staking from securities classification, including user asset control, the absence of pooled funds, permissionless unstaking, and the provision of purely technical services. They draw a parallel to proof-of-work mining, previously deemed non-securities by the SEC.

Everstake’s Chief Legal Officer, Margaret Rosenfeld, further clarified that non-custodial staking lacks asset handover, investment contracts, and third-party risk. She highlighted the potential for stifling innovation if non-custodial staking is treated as a securities offering. While the SEC hasn’t offered definitive guidance, they are actively engaging with stakeholders to gather input. This engagement includes discussions with groups like the Crypto Council for Innovation (CCI), who also called for regulatory clarity on crypto staking. The outcome of these discussions will significantly shape the future of staking in the US.