SEC Says Liquid Staking Not Securities: What Does This Mean?

Breaking down the August 5 guidance that could reshape crypto investing

The Securities and Exchange Commission made a groundbreaking announcement on August 5, 2025: liquid staking activities and their associated receipt tokens do not constitute securities offerings under federal law. But what exactly does this mean for everyday crypto investors, institutions, and the broader digital asset ecosystem?

Let's break down this complex regulatory decision and explore why industry experts are calling it a potential game-changer.

What Is Liquid Staking Exactly?

First, the basics. Liquid staking refers to the process of staking crypto assets through a software protocol or service provider and receiving a "liquid staking receipt token" to evidence the staker's ownership of the staked crypto assets and any rewards that accrue to them.

Think of it like a deposit receipt from a bank, but for cryptocurrency. When you participate in liquid staking, you deposit your crypto (like Ethereum) to help secure a blockchain network. In return, you get a tradeable token that represents your staked position—allowing you to earn staking rewards while maintaining liquidity.

This differs from traditional staking, where your crypto is typically locked up and can't be traded or used elsewhere.

The SEC's Legal Reasoning: Why Not Securities?

The SEC statement clarifies that Protocol Staking Activities are not among the specifically enumerated "securities" under the securities laws, including "investment contracts" under the rubric of the Howey test.

The Howey test determines whether something qualifies as an investment contract (and thus a security) based on four criteria:

1. Investment of money
2. In a common enterprise
3. With expectation of profits
4. Derived from the efforts of others

The SEC statement concludes that activities attendant to Protocol Staking—whether self-staking, delegating to a third party or using a custodian—are administrative or ministerial rather than entrepreneurial or managerial efforts.

In simple terms: the SEC determined that when you stake crypto, you're providing a service to the network yourself, not relying on someone else's business efforts to generate returns.

What This Means for Different Market Players

For Individual Investors

The guidance removes legal uncertainty that has made many retail investors hesitant to participate in staking. You can now:

• Participate in liquid staking with greater confidence
• Access a wider range of staking services as providers expand offerings
• Potentially see better yields as competition increases

For Institutions and Corporations

The impact here is massive. A new report from staking infrastructure firm P2P highlights a growing inefficiency in corporate crypto strategy, estimating that companies are missing out on more than $9.75 billion in annual staking rewards by not actively staking assets like Ethereum and Solana.

The regulatory clarity on staking from a securities perspective may also open doors for the SEC's approval of staking exchange-traded funds (ETFs) and for the Office of the Comptroller of the Currency (OCC) to formally open staking to U.S. banking institutions.

For Crypto Platforms and Service Providers

The guidance provides substantial validation for many current staking service providers, confirming that their business models generally don't trigger securities registration requirements when operated within the described parameters.

This means platforms can expand their liquid staking offerings without fear of sudden enforcement actions.

The Bigger Picture: Project Crypto in Action

This guidance isn't happening in isolation. It's part of Chairman Paul Atkins' "Project Crypto" initiative to modernize securities regulations and allow crypto-based trading.

"Today's staff statement on liquid staking is a significant step forward in clarifying the staff's view about crypto asset activities that do not fall within the SEC's jurisdiction. I am pleased that the SEC's Project Crypto initiative is already producing results for the American people," Chairman Paul S. Atkins said.

This represents a dramatic shift from the previous administration's approach. Since taking office, Atkins has led a more lenient approach to digital asset regulation, moving away from the agency's prior "regulation by enforcement" stance under former Chair Gary Gensler.

What About XRP? Limited Direct Impact, Strategic Benefits

Here's where it gets interesting for XRP holders. XRP doesn't operate on a traditional Proof-of-Stake consensus mechanism like many other digital assets. Instead, the Ripple network uses a Federated Byzantine Agreement (FBA) consensus model to validate transactions.

In short, can you stake XRP? The answer is no. XRP doesn't have native staking because of its unique consensus mechanism.

However, the regulatory momentum still benefits XRP and Ripple in several ways:

ETF Acceleration: XRP's chances of ETF approval have risen to 85% for September-October following new SEC listing standards that could expedite altcoin ETF approvals. The liquid staking guidance demonstrates the SEC's willingness to provide innovation-friendly frameworks.

Regulatory Clarity Trend: The guidance continues a pattern of clearer regulatory boundaries, which supports XRP's utility token narrative and strengthens Ripple's legal positioning.

Stablecoin Synergy: While XRP can't be staked, Ripple's RLUSD stablecoin aligns perfectly with the GENIUS Act framework, positioning the company as both a regulated stablecoin issuer and blockchain infrastructure provider.

Immediate Market Reactions and Next Steps

The Solana community celebrated the announcement, with the official Solana Twitter account posting: "BREAKING from @SECGov: Liquid staking activities and tokens are not considered securities 🔥🔥🔥"

Industry participants are still waiting for the approval of the first Ether (ETH) staking ETFs. On May 21, the SEC delayed its decision on Bitwise's application to add staking to its Ether ETF. This new guidance could accelerate those approvals.

"The foundation is being laid for more comprehensive crypto regulation, with staking ETF approval becoming increasingly plausible by late 2025," added Marcin Kazmierczak, co-founder and chief operations officer at blockchain oracle firm RedStone.

Important Limitations and Caveats

The guidance isn't unlimited. The SEC statement is narrowly framed and fact-dependent. It addresses only prescribed Protocol Staking Activities and not all variations of staking. Activities outside the defined parameters could still face securities regulation.

The SEC's guidance is also not binding. It does not foreclose contrary SEC guidance or enforcement activity. While this represents the SEC's current view, regulatory positions can evolve.

Bottom Line: What This Really Means

The SEC's liquid staking guidance represents more than technical regulatory clarification—it's a signal that America is serious about becoming crypto-friendly. By removing a major barrier to institutional participation in crypto staking, the SEC is opening doors that could unlock billions in previously sidelined capital.

For XRP, while direct staking benefits don't apply, the regulatory momentum strengthens the broader case for crypto adoption and could accelerate XRP ETF approval. Prediction markets show that XRP has an 86% chance of getting clearance, and it has already met the six-month futures barrier.

"Years from now, we will look back at today's announcement of 'Project Crypto' by Chairman Paul Atkins as being the big bang moment in crypto regulation in the United States," said Mike Piwowar, executive vice president of the Investment Company Institute.

The regulatory winter is ending. For crypto investors who've been waiting for clearer rules of the road, that might be the most important development of all.

DISCLAIMER: This newsletter is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any securities. Investments in cryptocurrencies or other financial assets carry significant risks, including the potential for total loss, extreme volatility, and regulatory uncertainty. Past performance is not indicative of future results. Always consult a qualified financial professional and conduct thorough research before making any investment decisions.