The U.S. Securities and Exchange Commission (SEC) issued new guidance on May 29, 2025, regarding cryptocurrency staking, providing much-needed regulatory clarity on the yield generated through the validation process for proof-of-stake (PoS) blockchains. Staking is one of the most popular methods to earn passive income in crypto, yet investors and regulators have long struggled to understand the legal nuances of this practice.
However, following the election of Donald Trump as president, the United States government has adopted a friendly stance towards digital assets and is actively exploring ways in which decentralized (DeFi) and traditional finance (TradFi) frameworks can coexist.
Before the updated guideline was released, investors and crypto service providers were unsure whether regulators would view staking rewards as investment returns or income, risking legal implications for stakeholders. The guidance outlines which types of staking are allowed and which are not, provides support for blockchain node operators, validators, and individual stakers, and most importantly, recognizes on-chain staking as a core functionality rather than a speculative investment like equities.
In this blog, we explain how US regulators will treat crypto staking under the new rules, the activities that are permitted, the legal rights of stakers, benefactors, and how to earn an income by staking your crypto or providing staking services. Whether you are an individual or institutional validator, these updates are necessary to remain compliant in the US.
What is Crypto Staking and How Does it Work?
Staking is the process used by blockchains, particularly those powered by proof-of-stake (PoS) consensus mechanisms, to support and secure their networks by confirming transactions and issuing blocks.
It works similarly to a traditional savings account, where users lock their crypto on the native protocol to earn interest as long as the tokens stay in place. The size of the rewards earned by a staker depends on the amount of tokens they staked and the duration of the stake.
Staking is a way for long-term crypto holders to earn an income by generating yield. It allows crypto users to earn rewards by locking their tokens directly on the issuing blockchain without requiring them to trade or sell them.
There are three key parties involved in the staking process:
- Token Holders: These stakeholders delegate their crypto to the blockchain to support the overall ecosystem and earn rewards.
- Validators: Validators are node operators responsible for verifying transactions, creating new blocks, and maintaining the blockchain’s security by staking some of the crypto as collateral. They also receive a reward for their efforts.
- Delegators: Delegators are users who stake their crypto for a long time and support validators by allowing them to process new transactions and secure the blockchain.
- Staking Services: Platforms like crypto exchanges and wallets are staking service providers. They facilitate the process by pooling users’ assets, staking them on the blockchain, and distributing rewards based on each user’s allocation.
Now, let’s take a look at how crypto staking works:
- Crypto holders, aka stakers, lock their tokens on the network for a chance to be selected as validators, chosen at random. Users must stake a minimum amount of tokens, as per the network requirement, to be accepted.
- Once the user has been selected as a validator, they are responsible for adding new blocks to the network and updating the ledger in exchange for a reward in the native token that is paid out once a block is successfully added. Each new block is signed by its validator.
- Other validators review the block to confirm the transaction. This is to ensure that the action was taken in the best interest of the blockchain. Any malicious activity results in the node being penalized and its block getting removed from the chain.
- Nodes continuously cross-check each other’s blocks for accuracy before it is added to the blockchain. This process is repeated like clockwork to ensure that the protocol is functioning properly.
- Locked tokens can only be withdrawn once the staking period comes to an end. Early withdrawal could result in reward losses.
SEC Guidance on Crypto Staking
In May 2025, the SEC’s Division of Corporation Finance released new guidance on when to consider and not consider crypto staking as a securities offering. These guidelines apply to solo staking, users delegating their tokens to third-party validators, and custodial platforms providing staking services on the users’ behalf, as long as they are directly linked to the network’s PoS consensus process.
The regulator clarified that these activities and their stakeholders do not qualify under the Howey Test to be considered an investment contract. Howey Test is a legal examination conducted in the US to determine whether a transaction qualifies as an investment, thus considered a security under federal law. To qualify as a security asset, a transaction must be an investment of funds in a group venture, with the exception that all gains come from group efforts.
The agency also differentiated between genuine protocol staking and schemes that promise returns from others’ efforts, like crypto lending and speculative platforms. The guidance clarifies that staking rewards earned through direct participation in protocol activities, such as validating transactions or securing the blockchain, will not be considered as investment returns.
Crypto staking activities that are allowed by the SEC
The SEC’s Division of Corporation Finance has specified a list of staking activities conducted as part of the consensus process of a PoS blockchain that do not constitute securities offerings. These procedures are now viewed as administrative rather than as an investment.
Solo Staking
Individuals can indulge in crypto staking using their own resources and infrastructure as long as they maintain ownership and control over the assets and are directly involved in the particular blockchain’s validation process. The SEC will no longer treat staking rewards as a securities transaction.
Non-Custodial Delegated Staking
Crypto users can now delegate their validator rights on the blockchain to third-party node operators without worrying about violating the Securities Act, as long as they do not transfer ownership of their crypto to the validator expecting rewards. The node operator staking their own tokens within the delegator contract to earn rewards does not constitute an investment transaction, according to the SEC.
Custodial Staking
Platforms like cryptocurrency exchanges can offer staking services to users as long as the assets are held for the owner’s benefit, not used for other company-related purposes, and the entire process and its terms of service are disclosed to the user before they take part in the transaction.
Running Validator Nodes
Rewards earned directly from the blockchain by operating staking validator nodes are no longer considered an investment transaction by the SEC. Staking is now viewed as a service to provide technical support to the network rather than an investment in a third-party business.
Crypto Staking Activities that Fall Under US Securities Laws
While the SEC guidance permits protocol-based staking tied to the consensus mechanism of proof-of-stake blockchains, certain staking practices are still considered an investment, and they are the following:
Yield Farming
Earnings from crypto deposits made into token pools that don’t directly contribute to blockchain validation or network security still fall under the Securities Act.
Bundled DeFi Staking Products Promising ROI
Staking service providers with unclear profit guarantees or reward sources are considered a regulatory risk by the SEC.
Platforms Disguising Crypto Lending as Staking Service
Crypto platforms that use users’ funds to lend to third parties and label the interest as staking rewards do not qualify under the SEC’s updated guidelines. These profits will be treated as unregistered securities.
SEC Guidelines for Companies/Platforms Providing Crypto Staking Services
The SEC has specified that crypto service providers like exchanges and wallets may offer “ancillary services” to token holders, given they are administrative or ministerial and do not involve entrepreneurial or managerial efforts.
Here are some of the points mentioned in the guidance:
- Similar to consumer protection efforts offered in traditional business transactions, service providers may compensate crypto owners for losses suffered due to an error by the blockchain node operator.
- Staking platforms may return users’ assets before the lockup period ends, shortening the wait for owners.
- Platforms can opt for a scheduled or flexible rewards return timeline, but should not fixate on or guarantee an amount beyond what is first specified.
- Platforms can combine users’ assets to meet network staking minimums. The process of pooling assets to conduct the validation process is allowed, as it is considered an administrative step rather than the entity being entrepreneurial.
How will the New SEC Guideline Benefit Various Stakeholders in Crypto Staking?
The SEC’s updated regulatory guidance for crypto staking will promote broader market participation, strengthening the PoS blockchain ecosystem by improving its security and ensuring node decentralization. Here is how it benefits the various stakeholders in the blockchain ecosystem:
Validators and Node Operators
These entities can now stake their assets and earn rewards without registering them as securities. This reduces the risk of solo and institutional blockchain node operators being sued by regulators as part of an enforcement action.
Development Teams in PoS Blockchains:
As per the SEC guidance, cryptocurrency staking is no longer considered an investment transaction, thereby validating the technology architecture of PoS blockchains. This allows development teams to grow their respective networks without altering token economics or compliance structures.
Custodial Service Providers
Crypto exchanges and other platforms providing custodial staking services can operate legally by disclosing their terms and conditions to users and keeping customer assets in separate, non-speculative accounts.
Retail and Institutional Participants
Individuals can engage in solo crypto staking or join a delegated staking pool to receive higher rewards without worrying about securities regulations. This update would allow compliance-focused entities to join PoS ecosystems.
How to Stake Crypto Legally in the U.S. in 2025?
The SEC’s formal approval of protocol staking activities as non-securities transactions provides much-needed relief for the crypto community. However, this requires users and staking service providers to adopt measures that are compliant with the US regulatory regime to ensure clarity, protect legal rights, and reduce risk.
Here are the best practices to legally stake PoS cryptocurrencies in 2025:
- Make sure that you are staking directly on the blockchain to support its network consensus. Your investment should become a part of the validation process, and the returns earned should come programmatically through the protocol and not via managerial or investment-like activity.
- Staking service providers must disclose their activities to the user beforehand and avoid using the deposited tokens for trading or lending. They should only act as agents facilitating protocol staking.
- Seek legal advice before launching a staking service to ensure that the entity’s activities are administrative and compliant with the SEC guidance on crypto staking.
- Stake earnings should be determined by the blockchain and not the platform facilitating the service to users. This is to prevent its classification as an investment contract under the Howey Test.
- Provide clear documentation to avoid confusion. This should explain user rights, how the asset will be used by the service provider, fees and other charges involved, and custody terms.
Conclusion
The SEC’s 2025 guidance on crypto staking is a huge turning point for the crypto industry in the United States. By providing clear rules for staking on PoS blockchain, the regulator has separated protocol delegation from third-party crypto yield-generating products, which are classified as investment products.
The securities watchdog has confirmed that solo staking, self-custodial staking, and staking through service providers would not be considered securities offerings. This has resolved a major legal uncertainty that has hindered user participation in maintaining leading proof-of-stake blockchains.
The framework views staking rewards as a payment for the user’s contribution to the networks, and not as profits from managerial efforts, exempting them from the Howey Test. Individual validators and users can now delegate their crypto to third-party node operators as long as they maintain control and ownership of the assets.
The legal clarity provided by the SEC establishes a stable foundation for compliant crypto staking infrastructure that will encourage institutional adoption of PoS blockchain networks, promoting innovation and growth in the sector, and further expand retail participation.
