Charles Hoskinson Addresses ADA Staking Security in Light of SEC Regulatory Clarity
The founder of Cardano, Charles Hoskinson, issued an important technical statement regarding the perception of storage security, in a context influenced by the recent guidelines from the U.S. Securities and Exchange Commission on liquid staking.
The SEC defined liquid staking as the act of depositing crypto assets through a provider, receiving in return a derivative (receipt token) that represents both the underlying asset and the earnings generated. Hoskinson, in his analysis, sought to distinguish the native Cardano staking delegation mechanism from this specific model, which has raised regulatory concerns in the U.S.
Technical Architecture of Cardano Staking
Cardano's Ouroboros consensus protocol allows ADA holders to delegate their tokens to stake pools without transferring custody of the assets. This delegation is an intrinsic mechanism for participating in the security and decentralization of the network, where delegators share rewards proportionally to their stake.
Hoskinson's Technical Distinction:
Hoskinson emphasized that ADA staking does not fall under the definition of an investment in a joint venture with an expectation of profits primarily derived from the efforts of others, a key criterion of the Howey Test, used to classify securities in the U.S. Instead, ADA delegation is an inherent function of the protocol, where users actively contribute to the security of the network and are rewarded for that participation, similar to earning interest for keeping funds in a savings account, although with variable risks and returns.
Implications of the SEC Regulatory Initiative
The SEC's clarification is part of a broader initiative to update the regulatory standards applicable to crypto assets, in a transitioning landscape toward a blockchain-based financial infrastructure.
