The U.S. Securities and Exchange Commission (SEC) stated that under certain conditions, some operations related to liquid staking don’t fall under federal securities laws. The decision received broad support from the crypto industry but sparked sharp criticism within the agency.
The SEC’s Division of Corporation Finance issued guidance clarifying how securities laws apply to crypto-asset operations within the scope of liquid staking. According to the document, under certain factual circumstances, such activity doesn’t constitute an offer or sale of securities under federal securities and exchange laws.
Liquid staking is a method of staking cryptocurrencies where a user delegates their tokens to a service provider via a protocol. In return, the user receives LSTs, which confirm ownership rights and the right to earn staking rewards. These LSTs can be used within the DeFi ecosystem, for example, as collateral, without waiting for the staked tokens’ lock-up period to end.
The regulator emphasized that the legal status of liquid staking operations depends on the specific conditions under which they’re carried out. The SEC noted that the key criterion remains the Howey Test — specifically, the element assessing whether an investor expects profits from an investment and whether those profits depend on the efforts of third parties. The regulator stated that providers performing purely administrative functions, such as issuing LSTs, may not fall under securities laws.
According to SEC Chair Paul S. Atkins, the agency aims to provide maximum clarity on applying federal laws to emerging financial technologies. He also added that developing precise requirements is part of Project Crypto, launched earlier this month.
Crypto industry participants responded positively to the SEC’s statement, expressing confidence that the decision will accelerate the rollout of new liquid staking-based products and services, boost traditional finance participation in the digital asset market, and attract retail investors.
Mara Schmiedt, Head of Alluvial, said the new rules enable institutional players to confidently integrate LST assets into their products, create new revenue streams, expand client bases, and develop secondary markets for liquid staking. Lucas Bruder, CEO of Jito Labs, noted that the regulator’s statement reflects a deep understanding of LST technology and is a direct result of consultations the SEC held with industry representatives in February.
However, the SEC’s statement drew criticism from current and former agency officials. Amanda Fischer, Former SEC Chief of Staff, compared liquid staking to Lehman Brothers’ practice of rehypothecating client assets before its 2008 collapse. “The SEC’s latest crypto giveaway is to bless the same type of rehypothecation that cratered Lehman Brothers — only in crypto it’s worse because you can do it without any SEC or Fed oversight,” Fischer claimed.
Her remarks were widely criticized by the crypto community. Matthew Sigel, Head of Digital Assets Research at VanEck, called Fischer’s statements contradictory, while Mert Mumtaz, CEO of Helius Labs, argued that the former official simply doesn’t understand how LST protocols work if she’s comparing blockchain transparency to banking practices. Jason Gottlieb, Regulatory Attorney at Morrison Cohen in New York, stated that Fischer’s claims lack both technical and legal merit.
Meanwhile, SEC Commissioner Caroline A. Crenshaw said the agency’s guidance “muddies the waters” and is based on a chain of unchecked assumptions forming a “wobbly wall of facts without an anchor in industry reality.” In her view, any deviation from the conditions outlined in the document places specific operations outside its scope, and the legal conclusions only apply if all assumptions match. Crenshaw also stressed that the document reflects only the opinion of the Division of Corporation Finance, not the SEC as a whole.
According to DefiLlama, as of June 8, 2025, protocols for liquid staking hold $67.65 billion in total value locked (TVL). The majority of LSTs are issued on the Ethereum blockchain, which accounts for approximately $51 billion of the segment’s TVL. The market leader remains Lido Finance, which holds about 48% market share with $31.88 billion TVL.
In 2023, liquid staking protocols surpassed decentralized exchanges (DEX) in terms of TVL, and by 2024, they accounted for about a quarter of the entire DeFi sector’s TVL.
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