Cryptocurrency staking is a process where holders of proof-of-stake (PoS) tokens lock up or delegate their assets to help secure a blockchain network and earn rewards. In recent years, U.S. regulators have grappled with a key question: Does staking constitute the offering of securities? This question hinges on the Howey Test, which defines an “investment contract” (and thus a security) as an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others . The U.S. Securities and Exchange Commission (SEC) has examined whether staking rewards are profits from others’ efforts or simply compensation for participating in a network. This report reviews the most recent SEC rulings and guidance on staking, from general PoS networks to the specific case of Cardano, and discusses how these developments affect Cardano’s stake pool operators and delegators.

SEC’s Early Stance: Staking-as-a-Service as a Security

In 2022-2023, the SEC signaled that certain staking arrangements might be considered unregistered securities offerings. SEC Chair Gary Gensler hinted that proof-of-stake tokens could meet the Howey Test because “investors anticipate a return” when purchasing tokens that can be staked . After Ethereum’s transition to PoS, Gensler commented that staking could make crypto look like an investment contract, noting that when third parties offer staking services, it starts to “becomes very similar to lending,” which requires SEC registration . In essence, the SEC’s concern was that users entrusting tokens to a service in exchange for yield are investing in a platform’s efforts, akin to a passive investment.

Enforcement Actions in 2023: This view was put into action with high-profile enforcement cases. In February 2023, the SEC charged crypto exchange Kraken for failing to register its staking-as-a-service program as a securities offering . Kraken’s program invited users to stake their crypto with Kraken and advertised up to 21% annual returns . The SEC’s complaint alleged that Kraken pooled customer assets and promised benefits from Kraken’s efforts in validating blockchain transactions and delivering rewards . Kraken settled the case by paying $30 million and agreed to shut down its U.S. staking service . SEC Chair Gensler used the moment to warn that staking providers must register and provide proper disclosures, stating that “whether it’s through staking-as-a-service, lending, or other means,” intermediaries offering investment returns in exchange for tokens need to comply with securities laws .

A few months later, in June 2023, the SEC took action against Coinbase. Alongside charges that Coinbase operated as an unregistered exchange, the SEC alleged Coinbase was engaging in an unregistered securities offering through its staking program . According to the SEC’s complaint, Coinbase pooled customers’ stakeable crypto assets (including various PoS tokens) and staked the pool on their behalf, then distributed a share of the rewards to customers . The SEC emphasized that Coinbase allowed users to earn profits from the “proof-of-stake” mechanisms of certain blockchains and from Coinbase’s efforts in running the staking operation . In the SEC’s view at that time, Coinbase’s staking service constituted an investment contract: users invested assets and expected a return due to the significant efforts of the intermediary (Coinbase) in managing and validating on the network . Like Kraken, Coinbase had not registered this offering. (Notably, multiple state regulators took similar actions against Coinbase’s staking program around that time, indicating broad U.S. regulatory scrutiny .)

These enforcement actions sent a clear early message: if a third-party platform pools investors’ crypto for staking and actively manages the process to deliver yield, the SEC may treat that arrangement as a security. The reasoning hinged on the Howey Test – users were investing their tokens in a common scheme and expecting profits predominantly from the efforts of the service provider (who selects validators, runs nodes, and dispenses rewards). The underlying PoS tokens themselves also fell under scrutiny. In its 2023 lawsuits, the SEC identified several tokens (including Cardano’s ADA) as unregistered securities, implying that the very act of selling or trading those tokens – independent of staking – violated securities laws . Cardano’s developers strongly disputed that label, noting “ADA is not, and has never been, a security” and criticizing the SEC’s factual basis . Nonetheless, by mid-2023 there was a “cloud” over staking: many U.S. crypto companies curtailed or modified their staking offerings to avoid running afoul of securities regulations.

The Howey Test Applied to Staking

To better understand the SEC’s rationale, it’s useful to break down the Howey Test in the staking context. Under SEC v. Howey, an arrangement is an investment contract (security) if it involves: (1) an investment of money (2) in a common enterprise (3) with a reasonable expectation of profits (4) to be derived from the entrepreneurial or managerial efforts of others . In staking: (1) users “invest” their tokens by locking or delegating them; (2) their fortunes may be tied to a common enterprise (for example, a staking pool or program where rewards for all participants depend on collective token stakes); (3) they expect profits in the form of staking rewards; and the key question (4) is whether those rewards come predominantly from the efforts of someone other than the user.

• Efforts of Others: The SEC’s 2023 enforcement stance treated staking programs as involving significant “efforts of others.” For instance, Kraken advertised its expertise in obtaining yield for investors – implying users relied on Kraken’s managerial efforts (choosing how to stake, running the infrastructure, and even paying out a portion of rewards from its treasury when necessary) . Coinbase’s program likewise centrally managed the staking process, with users depending on Coinbase to handle node operations and maintenance. In such setups, the platforms’ efforts were “undeniably significant ones” essential to the success of the investment program, satisfying Howey’s fourth prong .

• Common Enterprise: When users pool their tokens in a staking service, their assets are collectively used to generate rewards, indicating a common enterprise. Both the Kraken and Coinbase models pooled customer assets for staking . The success of each investor’s stake was tied to the overall pool performance and the provider’s competence, rather than the actions of any single token holder.

The legal ambiguity in 2023 was whether direct, protocol-level staking (without an active third-party promoter) also involves the “efforts of others.” If an individual simply runs their own node or delegates to a community-run node, one might argue there is no issuer or promoter – the only “efforts” are those of the protocol code and the participant themselves. The SEC had not given clear guidance on this distinction initially, leaving PoS communities uncertain if even decentralized staking could attract enforcement. This set the stage for calls to clarify how the Howey analysis should be applied to staking in decentralized networks.

2025 SEC Guidance: “Protocol Staking” Is Not a Securities Offering

After a period of industry pressure and internal debate, the SEC moved toward clarifying its position. On May 29, 2025, the SEC’s Division of Corporation Finance issued a landmark Staff Statement on Certain Protocol Staking Activities. This guidance directly addressed staking on public PoS networks and largely exempted typical staking from securities laws . In plain terms, the staff concluded that network-level staking, whether done by individuals or through third-party services, does not involve an investment contract requiring SEC registration .

According to the SEC staff, “Protocol Staking” refers to staking of crypto assets that are intrinsic to a blockchain’s functioning (for example, staking native coins like ADA on Cardano or ETH on Ethereum), in order to participate in the network’s consensus and operation . The key points from this 2025 guidance include:

• Staking Rewards as Compensation, Not Shared Profits: The SEC now characterizes staking rewards as earned income for services rendered to the network, rather than passive investment profit. The staff stated that staking rewards are “compensation” to node operators or delegators for helping secure the blockchain, not profits gained from the entrepreneurial efforts of a separate promoter . In other words, the network pays you for doing work (validating or delegating stake), akin to a fee for service, as opposed to you profiting from a company’s management skills. This directly addresses the Howey “profits from others’ efforts” prong – the staff’s view is that in protocol staking, others’ managerial efforts are not what produce the return.

• Self-Staking and Delegation: The guidance draws a line between ministerial vs. managerial efforts. When you run your own node (self-staking) and stake your assets, clearly you are not relying on someone else – you are performing the work and getting rewards . More importantly, the SEC staff also found that if you delegate your stake to a third-party node operator while keeping custody of your tokens, you likewise are not relying on that operator’s managerial expertise in the sense of Howey . The node operator’s role – keeping a server running and following the protocol rules – is deemed “administrative or ministerial in nature, not entrepreneurial or managerial” . The operator cannot make business decisions to increase the value of the enterprise; they simply perform automated network tasks. Additionally, the operator does not set or guarantee the reward amount (rewards are determined by the protocol), aside from taking a preset fee . Thus, in both solo staking and non-custodial delegation, the expectation of reward is not derived from the unique managerial efforts of others, but from the normal operation of the blockchain protocol.

• Custodial Staking Services: Notably, the SEC staff extended this reasoning to custodial staking arrangements (e.g. using an exchange or third party that holds your tokens and stakes on your behalf). Simply handing over custody for convenience does not, by itself, create an investment contract, the SEC now says . The staff reasoned that if the custodian is just acting as your agent – staking the tokens as you could yourself – and not actively making managerial decisions to generate extra profit, then the “efforts of others” prong isn’t met . Critical to this is that the custodian or service provider must not guarantee a fixed return or augment the protocol’s yield. The guidance emphasizes that if the provider merely passes through the protocol-determined rewards (perhaps minus a fee), and the yield is not fixed or higher than what the protocol pays, the service is indistinguishable from the user staking directly . In short, as long as the provider’s activities are limited to ministerial tasks (facilitating staking, running nodes, maintaining custody securely) and not entrepreneurial promises, custodial staking is not considered a securities offering under this new guidance.

• Ancillary Staking Services: The SEC staff also addressed common features offered by staking services – such as slashing insurance, early withdrawal (unbonding) options, flexible reward payment schedules, or pooling small holders to meet minimum stake thresholds. The statement explicitly says each of these “ancillary services” is also administrative in nature and doesn’t inject a managerial role that would trigger Howey . For example, insuring against slashing (penalties for validator misbehavior) is likened to a standard commercial warranty, and offering an early unbonding feature or periodic reward payouts are considered customer conveniences rather than evidence of an investor relying on someone’s business acumen . The bottom line: common staking service features, by themselves, do not turn the activity into a securities offering – provided, again, that the service isn’t promising extra profit beyond the protocol’s mechanics.

• Limits of the Guidance: The 2025 staff statement was careful to note it does not cover every scenario. It focused on “Covered Crypto Assets” used in protocol staking on public, permissionless networks . It did not opine on more complex arrangements like liquid staking tokens or re-staking (where staked positions are tokenized or used in other DeFi activities) . Those could raise separate issues. The statement also included a disclaimer that it “does not alter or amend applicable law” and has “no legal force or effect” as formal rulemaking . Instead, it represents the Division’s interpretive view – a form of guidance to market participants. This means that while it’s a strong signal of the SEC’s current thinking (and likely a relief for the industry), it’s not a binding safe harbor.

Mixed Reactions within the SEC: The new staking guidance was not without controversy inside the Commission. SEC Commissioner Hester Peirce publicly praised the staff’s statement, calling it “welcome clarity for stakers and staking-as-a-service providers in the United States” . Peirce, who has led the SEC’s Crypto Task Force, has long advocated for clear rules instead of broad enforcement, and she agreed that providing security to a network (through staking) should not be conflated with being a security . On the other hand, Commissioner Caroline Crenshaw issued a sharp dissent. Crenshaw argued that the staff’s analysis “does not square with the court decisions on staking and the longstanding Howey precedent”, noting that at least two federal courts had upheld the SEC’s legal theory that staking services were investment contracts . (She was alluding to early court findings in the Kraken and Coinbase cases, where judges did not dismiss the SEC’s claims that those staking programs met Howey .) Crenshaw warned that declaring protocol staking non-security “ignores existing law” and amounted to a “fake it till we make it” approach – effectively, she believes the SEC is prematurely giving industry a pass in anticipation of rules that don’t yet exist . Her dissent underscores that not everyone in the SEC is on the same page, and it hints that the debate is not fully settled. Nonetheless, as of mid-2025, the official staff guidance indicates that typical staking by itself is not viewed as an offering of securities by the SEC.

Implications for Proof-of-Stake Networks

The 2025 SEC guidance on staking has broad implications for all PoS blockchain networks. By affirming that staking rewards = network fees, not investment profits, the SEC has eased a major regulatory fear for participants in networks like Ethereum, Solana, Cardano, Tezos, and others that use staking for consensus. Key takeaways include:

• Staking Participation: Investors and token holders can more confidently participate in on-chain staking without registering as investors in a security. Running a validator node or delegating stake is now explicitly viewed as a technical activity outside the SEC’s purview . This encourages decentralization, as people are less likely to shy away from staking due to legal ambiguity.

• Staking Service Providers: Exchanges and custodians offering staking services received a framework for compliance. They may continue to offer staking to U.S. customers provided they act as pure intermediaries: passing through protocol rewards, not commingling staking with other yield schemes, and not advertising “guaranteed” returns beyond what the network pays . We may see providers adjust their terms (e.g. only offering variable, protocol-based yields and clearly disclosing risks) to fit this model. In fact, after the Kraken action in 2023, many U.S. companies had already moved toward a more transparent, pass-through staking service. The SEC’s guidance essentially validates that approach as lawful.

• Token Classification vs. Staking: It’s important to distinguish the act of staking from the status of the token itself. The new guidance does not automatically mean the SEC concedes that all PoS tokens are not securities. For example, the SEC’s 2023 lawsuits named tokens like ADA, SOL, MATIC, ALGO and others as alleged securities due to factors like their sales and marketing, not because of staking per se . That issue (whether certain crypto assets are securities based on how they were issued and marketed) remains separate. The SEC can maintain that a token is a security (under investment contract theory) even if the act of staking it is not a securities offering. In practice, however, if a token’s primary use is staking on a decentralized network, the new stance could weaken the argument that holders are relying on a centralized promoter’s efforts. We might see this play out as courts consider the nature of these tokens – e.g., if the network is sufficiently decentralized and staking is just network participation, a token like ADA may be less likely to be deemed a security, an argument Cardano’s camp has made from the start.

• Continued Caution for Novel Staking Models: The SEC staff intentionally left out liquid staking (where users get tradeable tokens representing staked assets) and complex DeFi staking schemes from its safe harbor. Those could be viewed differently. For instance, if a service offers a derivative token and additional yield on top of base staking rewards, or if it actively manages staked funds across multiple platforms for profit, those added “entrepreneurial” efforts might trigger the Howey test. Regulators and courts will likely tackle these on a case-by-case basis. For now, plain staking on a network is in the clear, but anything that looks like pooling assets and promising profit beyond the protocol’s standard rewards might still be regulated as a security.

Impact on Cardano’s Staking (Stake Pools and Delegators)

Cardano is a major PoS blockchain, so these regulatory developments directly affect its community of stake pool operators (SPOs) and ADA delegators. Cardano’s staking model is often cited as an example of decentralized, self-custodial staking, and it appears well-aligned with the SEC’s 2025 guidelines:

• Cardano’s Staking Architecture: In Cardano, ADA holders can either run their own stake pool or delegate their stake to a third-party stake pool operator. Delegation is non-custodial – the ADA never leaves the holder’s wallet; it is simply “staked” via a delegation certificate, and the network accounts for that stake when selecting validators. Stake pool operators are independent node operators who maintain Cardano’s blockchain; in return, they take a small fee (and/or a fixed margin) from the rewards their pool earns, while the rest is distributed to delegators. Importantly, operators cannot alter the protocol-defined rewards – each epoch, the Cardano protocol automatically calculates rewards for each pool based on the stake delegated and the pool’s performance. This design means delegators’ profits are formulaically determined by the protocol, not by the business decisions of the pool operator.

• Staking = Network Service, Not Investment Contract: Under the SEC’s new framework, Cardano’s staking looks like a textbook case of “Protocol Staking” that is not a securities offering. When an ADA holder delegates to a stake pool, they are effectively granting the pool operator the validation rights of their ADA (similar to the scenario described in the SEC guidance) while retaining ownership of their tokens. The SEC staff specifically noted that when a token owner grants validation rights to a third-party node operator, the owner “has no expectation of profit derived from the entrepreneurial or managerial efforts of others” – the operator’s role is purely ministerial (running the node according to the protocol) . The operator does not exercise unique management that could make or break an investor’s profit; they simply keep the infrastructure going. Cardano SPOs cannot promise any ROI beyond what the protocol yields, and Cardano’s open network means any competent operator following the protocol will earn similar proportional rewards. Thus, a Cardano delegator’s reasonable expectation of profit comes from Cardano’s protocol design and the overall performance of the decentralized network, rather than the creative entrepreneurship of a specific pool operator .

• Cardano vs. Earlier SEC Concerns: When the SEC in 2023 labeled ADA as a security and cracked down on exchange staking, there was concern that Cardano’s ecosystem could be at risk. For instance, U.S. exchanges like Robinhood preemptively delisted ADA in mid-2023 due to the SEC’s allegations. Cardano’s founders and Input Output Global (IOG) responded strongly: they pointed out that ADA’s initial sale was overseas and decentralized over time, and that Cardano never had a central profit-promising entity as in typical securities offerings . IOG stated that the SEC’s filings were “numerous factual inaccuracies” and reiterated ADA “is not, and never has been, a security” . From a staking perspective, Cardano’s model arguably exemplifies decentralization – thousands of independent pools, no custody transfer needed for staking, transparent on-chain reward formulas – making it difficult to argue that ADA holders are relying on the managerial efforts of a single promoter. The SEC’s 2025 guidance essentially affirms this: network rewards in a truly decentralized PoS system are not investment profits from someone else’s enterprise.

• Regulatory Risk and Compliance for Cardano Stakeholders: For Cardano stake pool operators, especially those based in the U.S., the new SEC stance is largely positive. It suggests that running a Cardano stake pool per se does not require SEC registration or regulatory oversight as a securities platform, since the service is simply helping facilitate protocol staking (a non-security activity) . An SPO who limits their role to operating the node and distributing the protocol’s rewards (minus a fee) is, in the SEC’s view, not issuing any investment contract to delegators. This greatly reduces the legal uncertainty that existed previously – many SPOs were concerned that inviting delegations could be construed as offering an unregistered security. Now, they have strong grounds to believe that’s not the case, as long as they don’t add extra features that change the economic reality (for example, an SPO should not promise to pay a fixed interest rate irrespective of actual rewards, as that could be seen as a guarantee beyond protocol terms).
  Delegators (ADA holders) likewise face less regulatory concern when staking. Delegating ADA from a personal wallet is simply using the network as intended, and the SEC has effectively acknowledged this activity is outside the scope of securities law. Staking rewards for ADA holders are akin to earning a protocol dividend for network participation, not a share of profits from a company. This clarity may encourage more ADA holders in the U.S. to participate in staking, knowing that the SEC is not treating them as investors in a security offering by doing so.

• Operational Security and Network Resilience: “Operational security” in the context of Cardano can be understood as the network’s ability to continue functioning securely despite external challenges (including regulatory actions). Cardano’s decentralization provides a buffer against any one jurisdiction’s measures. Even if, hypothetically, regulations made it difficult for some U.S.-based stake pools or exchanges to support ADA staking in the past, Cardano has hundreds of pools worldwide to maintain network uptime and security. In fact, when the SEC lawsuits were filed in 2023, IOG stated that these actions would “not affect [Cardano’s] operations” – the protocol continued producing blocks, and community pools kept running. With the new SEC guidance, the risk of an enforcement-driven shutdown of U.S. Cardano pools is even more remote. The network’s operational continuity looks secure: there is no need for Cardano to “pause” U.S. staking or split the network, since the activity is recognized as lawful.
  That said, Cardano’s community will remain vigilant. Regulatory risk has not vanished completely. The SEC’s internal division (as seen with Commissioner Crenshaw’s dissent) means future commissions or court decisions could reinterpret things. Also, if ADA itself is definitively declared a security by a court, it could impose compliance requirements on exchanges or large U.S. entities dealing in ADA, which might indirectly affect liquidity or the ease of participation for U.S. users. Cardano entities like the Cardano Foundation and IOG are likely to continue engaging with regulators and perhaps advocating for clearer legislation to cement the status of decentralized networks. For now, however, Cardano can operate with increased confidence that its staking model does not inherently violate U.S. securities laws.

Final Thoughts...

The regulatory landscape for crypto staking has evolved significantly between 2023 and 2025. Initially, the SEC’s posture was cautious and enforcement-heavy: staking programs offered by intermediaries like Kraken and Coinbase were treated as unregistered securities offerings, on the theory that users were investing their tokens for profits largely from the efforts of the service provider . This brought PoS networks under a cloud of uncertainty, with questions about whether everyday on-chain staking might also be swept up in the definition of a security. However, the most recent SEC guidance provides a much clearer and more favorable answer: typical proof-of-stake blockchain activities – validating and delegating to secure a network – do not constitute the offering of securities . Staking rewards are earned income for running the infrastructure (or contributing to it), not a share of profits from someone else’s managerial enterprise.

For Cardano, this clarification is especially pertinent. Cardano’s decentralized staking framework exemplifies the kind of protocol-driven, self-directed activity that the SEC’s 2025 statement shields from securities regulation. Cardano’s stake pool operators and ADA holders can take comfort that, as long as they stick to the protocol’s standard mechanisms, they are not engaged in an “unregistered securities” scheme by participating in staking . This reduces regulatory risk and helps ensure Cardano’s ongoing operational security, since the network can continue to be secured by a broad, global set of participants without U.S. legal impediments.

That said, it remains important to monitor how U.S. regulators and courts treat specific tokens like ADA. The SEC has not formally retracted its allegation that ADA (among others) could be a security . Ultimate resolution of a token’s status may come from legislation or litigation. In the meantime, the SEC’s current policy trajectory – supported by one commissioner and contested by another – suggests a more nuanced approach: targeting truly investment-like schemes (e.g. exchanges promising above-market staking yields or acting in managerial capacities) while endorsing pure, protocol-level staking as outside the securities realm.

In summary, staking itself is generally not considered the offering of securities under recent SEC guidance, which is good news for blockchain networks and participants. For Cardano, this means its core consensus mechanism and the roles of delegators and stake pool operators are, for now, on firm legal ground. Cardano’s community should continue to follow regulatory developments, but the foundation of its PoS model – decentralization and user empowerment – aligns well with the SEC’s latest criteria, positioning Cardano as a lower-risk platform in terms of U.S. securities law exposure. Going forward, ongoing dialogues between the crypto industry and regulators (and perhaps new laws from Congress) will further clarify these issues, but the trend indicates that staking, when properly conducted, can thrive without being deemed a securities violation .

References

• SEC Press Release – Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program… (Feb. 9, 2023)

• SEC Press Release – SEC Charges Coinbase for Operating as Unregistered Exchange… and for Unregistered Offer and Sale of Staking Program (June 6, 2023)

• SEC Division of Corporation Finance – Statement on Certain Protocol Staking Activities (May 29, 2025)

• SEC Commissioner Hester Peirce – Statement: Providing Security is Not a “Security” (May 29, 2025)

• SEC Commissioner Caroline Crenshaw – Response to Staff Statement on Protocol Staking (“Stake it Till You Make It?”) (May 29, 2025)

• Coindesk – SEC Chair Gensler Suggests Proof-of-Stake Tokens Could Be Securities (Mar. 2023)

• Cointelegraph – Crypto Staking on Proof-of-Stake Blockchains Not a Security: SEC Staff (May 30, 2025)

• CryptoSlate – Input Output (Cardano) Says ADA Is Not a Security (June 7, 2023)