- The Proof of Stake Alliance laid down four industry principles to improve the regulatory landscape surrounding liquid staking.
- The Alliance suggested that Liquid Staking Tokens should not be considered investment contracts or treated as securities.
- Earlier this month, the Securities and Exchange Commission fined and shut down Kraken’s crypto-staking services.
The crypto industry was hit hard this month when the Securities and Exchange Commission (SEC) cracked down on staking services. This led to many industry leaders coming together and finding a solution for assets related to liquid staking, with the Alliance publishing its legal research on Tuesday.
Liquid Staking Tokens and their principles
The Proof of Stake Alliance (POSA), in two white papers, issued what it considers as the legal research and analysis of liquid staking tokens. The alliance argued that such tokens for digital commodities must not be treated as securities or taxable events. Commenting on the same POSA stated,
“By building on well-established case law and legal precedent, these papers provide scholarly legal research and analysis for the industry and lawmakers, offering a framework for meaningful legislative codification or elucidation.”
Part of the research also included POSA defining four industry principles aimed at improving the regulatory landscape when it comes to liquid staking. The first of these is appropriate labeling of such assets and calling them “Liquid Staking Tokens” (LSTs).
The papers represent the first public legal research and analysis of liquid staking tokens under U.S. federal securities, commodities, and tax law, with the aim to resolve key legal questions around the regulation & taxation of liquid staking in the U.S.
— Proof of Stake Alliance (POSA) (@TeamPOSA) February 21, 2023
The second principle was to develop tools to enable direct staking with access to liquidity, not staking-backed yield products. This was followed by focusing promotion on expanding liquidity without giving up any security and participation. Lastly, the alliance suggested refraining from providing investment advice.
POSA also urged that LSTs should not be treated as securities under the US Federal securities law, nor should these tokens be considered as swaps under commodity laws. Furthermore, the alliance published that the conversion of crypto assets for LSTs should not be marked as a taxable event under income tax laws.
SEC took on Kraken
The concerns surrounding liquid staking began early this month following SEC’s charges against Kraken. The cryptocurrency exchange was fined $30 million and was asked to shut down the selling of its crypto-staking services.
SEC Chair Gary Gensler, at the time of the charges, explicitly stated the need for disclosure under the securities law and said,
“Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
Polkadot Price Forecast: DOT confirms trend reversal, eyes retest of $5 after reclaiming key hurdle

Polkadot seems to be ending its downtrend after shedding 92.91% in the last two years from its all-time high of $55.09. In the last three days, DOT has inflated by 3.3%, breaching a declining trendline and confirming the potential start of an uptrend.
Floki Inu Price Forecast: FLOKI sets stage for 30% rally

Floki Inu price rallied nearly 20% on September 30 but closed the candlestick with a 12% gain. The recent uptick opens the possibility of a 30% rally for FLOKI holders. A daily candlestick close below the $0.0000160 level would invalidate the bullish thesis.
Binance Coin Price Prediction: BNB struggles will end after reclaiming $228

Binance Coin (BNB) price has been in a tight consolidation for nearly six weeks. But the range tightening could end soon, potentially allowing bulls to take over and attempt to flip multiple hurdles standing in their way.
Solana Price Forecast: SOL big picture to flip bullish soon, all eyes on $26

Solana (SOL) price seems to be undoing the bearish pressure that has kept it subdued all this time. The recent spike in buying pressure has pushed SOL to produce a higher high on the three-day chart, signaling a shift in momentum favoring bulls.
Bitcoin: BTC recovery rally could be bull trap in disguise, here’s why

Bitcoin (BTC) price remains unfazed even after the multiple spot BTC ETF delays from the US Securities & Exchange Commission (SEC). But investors need to be careful with the ongoing BTC rally as it could be a trap for early bulls.