Author: White55, Mars Finance
1. The 'watershed' of regulation: Why did the SEC bow to liquid staking?
Excerpt from the SEC staff statement on certain crypto liquid staking activities. Source: SEC
On August 6, 2025, the U.S. Securities and Exchange Commission (SEC) quietly released a groundbreaking Liquid Staking Activities Guidance, which for the first time clarifies: under specific scenarios, liquid staking tokens (LSTs) do not constitute a securities offering, and related service providers are not required to register under securities law. The subtext of this guidance is that the staking ecosystem of mainstream public chains like Ethereum and Solana has finally received a 'compliance passport.'
The core logic of the SEC lies in the separation of economic substance:
Staking receipt tokens (such as stETH, mSOL) are merely 'proof of ownership'; their issuance and trading do not involve the 'investment contract' attribute. As long as the user's deposit of crypto assets is independent of any promise to 'rely on the efforts of others to profit', it does not trigger the Howey Test.
Clarification of regulatory boundaries: The SEC has named protocols such as Lido, Marinade Finance, and JitoSOL as meeting exemption criteria because their functions are limited to 'administrative services' (such as token minting and reward distribution), rather than active management or income guarantees.
This shift is driven by a dual game of politics and markets:
SEC Chairman Paul Atkins has shifted from the previous 'enforcement regulatory' style to promote the 'Project Crypto' initiative, viewing staking as a 'cybersecurity service' rather than a speculative tool.
(The CLARITY Act) is forcing Congress to exclude node operations, staking, and self-custody wallets from the definition of 'securities broker', compelling the SEC to fight for rule-making authority.
2. Dissecting liquid staking: Why is it the 'liquidity engine' of DeFi?
1. Mechanism: From asset locking to capital fission
Liquid staking allows stakers to use alternative tokens to maintain liquidity of their staked tokens and to earn additional returns through DeFi protocols using those alternative tokens.
Before delving into liquid staking, let's first understand staking and its related issues. Staking refers to locking cryptocurrency in a blockchain network to maintain its operation, allowing stakers to earn returns. However, staked assets typically become illiquid during the staking period, as they cannot be exchanged or transferred.
Liquid Staking enables cryptocurrency holders to participate in staking without relinquishing control of their held assets. This fundamentally changes the way users engage in staking. Projects like Lido have introduced liquid staking, providing a tokenized representation of staking assets in the form of tokens and derivatives.
It allows users to gain the advantages of staking while retaining the flexibility to trade, enabling the trading of these tokens or transferring them to other users within decentralized finance (DeFi) applications.
2. The 'power struggle' with delegated staking
In Delegated Proof of Stake (DPoS) networks, users vote to elect their preferred representatives. However, the purpose of liquid staking is to allow stakers to circumvent minimum staking thresholds and token locking mechanisms.
While the basic concept of DPoS is inspired by Proof of Stake (PoS), its execution differs. In DPoS, network users have the right to elect representatives, known as 'witnesses' or 'block producers', responsible for block validation. The number of representatives participating in the consensus process is limited and can be adjusted through voting. Network users in DPoS can pool their tokens into an equity pool and use their aggregated voting power to vote for their preferred representatives.
On the other hand, liquid staking aims to lower investment thresholds and provide stakers with a way to circumvent token locking mechanisms. Blockchains typically have minimum requirements for staking. For example, Ethereum requires anyone wishing to establish a validator node to stake at least 32 ETH. It also requires specific computer hardware, software, time, and expertise, all of which require significant investment.
This model has ignited market growth: the total value locked (TVL) in liquid staking protocols has surpassed $67 billion, with Ethereum accounting for 76% ($51 billion) and Lido holding a 31% market share.
3. How liquid staking works
Liquid staking aims to eliminate staking thresholds, allowing holders to profit from liquidity tokens.
Equity pools allow users to combine multiple small stakes into a larger stake using smart contracts, which provide each stakeholder with corresponding liquidity tokens (representing their share in the pool).
This mechanism eliminates the threshold for becoming a staker. Liquid staking goes a step further, allowing stakers to obtain dual benefits. On one hand, they can profit from the staked tokens; on the other hand, they can leverage liquidity tokens for profit through trading, lending, or any other financial activity, without affecting their original staking position.
Taking Lido as an example will help us better understand how liquid staking operates. Lido is a liquid staking solution for PoS currencies, supporting multiple PoS blockchains, including Ethereum, Solana, Kusama, Polkadot, and Polygon. Lido provides an innovative solution to the barriers posed by traditional PoS staking by effectively lowering the entry threshold and related costs of locking assets in a single protocol.
Lido is a staking pool based on smart contracts. Users deposit assets into the platform to stake on the Lido blockchain through the protocol. Lido allows ETH holders to stake a small portion of the minimum threshold (32 ETH) to earn block rewards. After depositing funds into Lido's staking pool smart contract, users receive Lido Staked ETH (stETH), which is an ERC-20 compatible token generated upon deposit and destroyed upon withdrawal.
The protocol allocates the staked ETH to validators (node operators) within the Lido network, which is then deposited into the Ethereum beacon chain for validation. These funds are subsequently held in a smart contract, which validators cannot access. The ETH deposited through the Lido staking protocol will be divided into collections of 32 ETH, managed by active node operators in the network.
These operators use public verification keys to verify transactions involving users' staked assets. This mechanism allows users' staked assets to be distributed across multiple validators, thereby reducing the risk of single points of failure and the risks associated with staking on a single validator.
Stakers deposit tokens such as SOL, MATIC, DOT, KSM into Lido's smart contract to receive stSOL, stMATIC, stDOT, and stKSM respectively. stTokens can be used for DeFi yield earning, providing liquidity, trading on decentralized exchanges (DEX), and many other use cases.
4. The 'domino effect' of the SEC guidance: Who is celebrating? Who is on alert?
1. Institutions: From bystanders to 'staking whales'
The staking revolution of ETF issuers: Rex Shares has launched the first Solana staking ETF in the U.S., holding at least 50% of its position in SOL through a Cayman subsidiary; applicants for Ethereum ETFs such as BlackRock and VanEck are urgently revising their plans to include staking clauses — analysts predict a probability of approval exceeding 95%.
The 'hoarding coins for interest' trend among listed companies:
Bitcoin mining company Bit Digital liquidated its mining rigs and shifted to Ethereum staking;
SharpLink Gaming staked all 198,000 ETH (approximately $500 million), earning 102 ETH in a single week;
BitMine raised $250 million to establish an ETH staking fund, managed by Wall Street veteran Tom Lee.
The new calculation on Wall Street: with government bond yields at only 4%, staking ETH can earn 5% returns + asset appreciation potential — this is the crypto version of 'fixed income +'.
2. The compliance turning point for DeFi
The explosion of the 'secondary market' for LSTs: Institutions can incorporate tokens like stETH into their balance sheets or use them as collateral for derivatives. Alluvial's CEO predicts: 'The securities exemption for staking tokens will give birth to a trillion-dollar on-chain government bond market.'
The retail entry revolution: Robinhood has opened ETH and SOL staking to U.S. users; Kraken has implemented non-custodial Bitcoin staking through the Babylon protocol (user BTC remains on the mainnet, locked through Tapscript to earn returns).
The endgame: When Wall Street takes over the staking empire
The SEC's release is actually the prologue to institutional compliance:
Staking as a Service (StaaS) will replace retail mining and become a standard configuration for asset management giants like BlackRock and Fidelity;
LST derivatives (such as futures and options) are listed on CME and ICE, attracting hedge funds to hedge staking yield volatility;
The entry of sovereign funds: Funds from the UAE and others are testing staking ETFs, viewing them as 'digital sovereign bonds'.
And the ultimate goal of all this is to transform PoS chains like Ethereum and Solana into a 'digital bond market' for global capital — where staking yields become the new government bond yields, LSTs are the new T-Bills, and the SEC's seal is merely the key to Wall Street's treasury.
History never repeats itself, but it rhymes: In 1688, underwriters in London cafes used wealth guarantees for overseas merchant ships; in 2025, the SEC guarantees the safety of navigation through the sea of code with a guidance document.
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