Author: White55, Mars Finance
One, the 'watershed' of regulation: Why did the SEC yield to liquid staking?
Excerpt from SEC staff statement on certain cryptocurrency liquid staking activities. Source: SEC
On August 6, 2025, the U.S. Securities and Exchange Commission (SEC) quietly released a groundbreaking (Liquid Staking Activities Guideline), which for the first time clearly stated that liquid staking tokens (LST) do not constitute securities issuance in specific scenarios, and relevant service providers do not need to register under the (Securities Law). The subtext of this guideline is that the staking ecosystem of mainstream public chains like Ethereum and Solana has finally obtained a 'compliance passport.'
The core logic of the SEC lies in the cutting of economic substance:
Staking receipt tokens (such as stETH, mSOL) are merely 'proof of ownership', and their issuance and trading do not involve 'investment contract' attributes. As long as the user's act of depositing crypto assets is independent of any commitment to 'profit from the efforts of others', it does not trigger the Howey Test.
Clarification of regulatory boundaries: The SEC has named protocols like Lido, Marinade Finance, JitoSOL as meeting exemption criteria, as their functions are limited to 'administrative services' (such as token minting, reward distribution), rather than active management or profit guarantees.
This transformation is driven by a dual game of politics and market forces:
SEC Chairman Paul Atkins has shifted from his predecessor's 'enforcement-based regulation' style to promote the 'Project Crypto' initiative, viewing staking as 'network security services' rather than a speculative tool.
The pressure from the (CLARITY Act): Congress intends to exclude node operations, staking, and self-custody wallets from the definition of 'securities brokers', forcing the SEC to rush for rule-making authority.
Two, dissecting liquid staking: Why is it the 'liquidity engine' of DeFi?
1. Mechanism: From asset locking to capital fragmentation
Liquid staking allows stakers to use alternative tokens to maintain liquidity for their staked tokens and earn additional yields through DeFi protocols using that alternative token.
Before diving deep into liquid staking, let’s first understand staking and its related issues. Staking refers to locking cryptocurrencies in a blockchain network to maintain its operation, allowing stakers to earn returns. However, the staked assets typically become illiquid during the staking period because they cannot be redeemed or transferred.
Liquid staking allows cryptocurrency holders to participate in staking without relinquishing control over their held assets. This fundamentally changes the way users stake. Projects like Lido introduce liquid staking, providing tokenized representations of staked assets in the form of tokens and derivatives.
It allows users to enjoy the benefits of staking while retaining transactional flexibility, enabling them to trade these tokens in decentralized finance (DeFi) applications or transfer them to other users.
2. The power struggle with delegated staking
Users in delegated proof of stake (DPoS) networks select their preferred representatives through voting. However, the goal of liquid staking is to allow stakers to circumvent minimum staking thresholds and token locking mechanisms.
Although the basic concept of DPoS draws from 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. Users in DPoS can pool their tokens into a staking pool and use their combined voting power to vote for their preferred representatives.
On the other hand, liquid staking aims to lower the investment barrier and provide stakers with a way to circumvent token locking mechanisms. Blockchains typically have minimum requirements for staking. For instance, Ethereum requires anyone wishing to establish a validator node to stake at least 32 Ether. It also requires specific computer hardware, software, time, and expertise, all of which require substantial 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 alone holding 31% market share.
Three, how liquid staking works
Liquid staking aims to eliminate the staking barrier, allowing holders to profit using liquidity tokens.
The staking pool allows users to combine multiple small stakes into one large stake using smart contracts, with the smart contract providing corresponding liquidity tokens for each stake holder (representing their share in the pool).
This mechanism eliminates the barrier to becoming a staker. Liquid staking goes a step further, allowing stakers to earn double profits. On one hand, they can profit from the staked tokens; on the other hand, they can profit using liquidity tokens through trading, lending, or any other financial activities, 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 entry barriers and the related costs of locking assets in a single protocol.
Lido is a staking pool based on smart contracts. Users deposit assets into the platform, allowing them to stake on the Lido blockchain via 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 will receive Lido Staked ETH (stETH), an ERC-20 compatible token that is generated upon deposit and destroyed upon withdrawal.
The protocol allocates the staked ETH to validators (node operators) in the Lido network, which are then deposited into the Ethereum beacon chain for verification. These funds are subsequently held in a smart contract that the validators cannot access. The ETH deposited through the Lido staking protocol is divided into collections of 32 ETH, which are safeguarded by active node operators in the network.
These operators use public verification keys to validate transactions involving user-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 with a single validator.
Stakers deposit tokens such as Solana's 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.
Four, the SEC's guideline on the 'Domino Effect': 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 SOL through a Cayman subsidiary and staking at least 50% of the positions; BlackRock, VanEck, and other Ethereum ETF applicants are urgently revising their proposals to include staking clauses—analysts predict a probability of approval exceeding 95%.
The trend of public companies 'hoarding cryptocurrencies' is rising:
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.
Wall Street's new arithmetic: With treasury bond yields at only 4%, staking ETH can yield 5% returns + asset appreciation potential—this is the 'fixed income +' crypto version.
2. The compliance turning point of DeFi
The explosion of the 'secondary market' for LST: Institutions can include tokens like stETH in their balance sheets, or use them as collateral for derivatives. Alluvial's CEO predicts: 'The securities exemption for staking tokens will give rise to a trillion-dollar on-chain treasury bond market.'
The retail entry revolution: Robinhood has opened ETH and SOL staking to U.S. users; Kraken has achieved non-custodial Bitcoin staking through the Babylon protocol (users' BTC remains on the mainnet, earning yields through Tapscript locking).
The endgame: When Wall Street takes over the staking empire
The SEC's approval is essentially 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) land on CME, ICE, attracting hedge funds to hedge against staking yield fluctuations;
The entry of sovereign funds: Funds from the UAE and other regions are testing staking-type ETFs, viewing them as 'digital sovereign bonds.'
The ultimate goal is to transform PoS chains like Ethereum and Solana into a 'digital bond market' for global capital—where staking yields are the new treasury bond yields, LSTs are the new T-Bills, and the SEC's stamp is merely the key for Wall Street to open the vault.
History never repeats itself, but it rhymes: In 1688, underwriters in London coffeehouses guaranteed overseas merchant ships with wealth; in 2025, the SEC guaranteed the navigation safety of the sea of code with a guideline.
