An industry advocacy group representing several members from within the digital asset ecosystem, the Crypto Council for Innovation (CCI), has recently submitted a letter to the U.S. Securities and Exchange Commission (SEC). The SEC has been directly urged in the letter dated Wednesday, April 30, to offer guidance on crypto staking and other contested services provided by companies.
Crypto Council for Innovation Overview
As cited, the CCI is a consortium of more than thirty crypto businesses ranging from exchanges to managers and research firms. Its mission is to influence state institutions to adopt what it considers more favorable policies towards the regulation of the crypto market. Among its sizable membership is also the cryptocurrency exchange Kraken, stablecoin issuer Circle, as well as Fidelity Investments, one of the largest asset managers in the world. Such diversity of the member companies allows the CCI to represent a larger scope of issues, as is the case with the letter to the SEC.
Staking: Technical Process vs. Investment Activity
In the letter submitted to the SEC, the Crypto Council for Innovation focuses its main argument core on the issue of the nature of cryptocurrency staking. The CCI contends that, similar to the proof-of-work mining processes employed by some cryptocurrencies, staking ought not to be regarded from an investment activity perspective under securities laws. Rather, the organization asserts that, at its core, staking is a technical process. This technical process is described as necessary for securing a blockchain network and validating transactions on that network. Users participate in this process by “staking” or locking a specific amount of cryptocurrency on the network. For securing the network and validating transactions, participants receive rewards that are granted according to a portion of the cryptocurrency they have staked.
Request for Comparison and Clarity
In the SEC’s case, the CCI attributed a lack of an answer on the treatment of staking activities under US securities law as the regulatory gap. The letter argues that Canada, the United Kingdom, and some other countries have already addressed this issue. The SEC has also issued some statements about crypto activities; the source points out that the agency made some comments on mining publicly as recently as March. The CCI hopes that in the same manner, they will receive a clear answer from the SEC regarding the regulatory consideration of staking.
The communication from the CCI contains a clear proclamation defining its stance on the categorization of staking and the application of securities laws. The letter quotes the CCI: “Staking is not an investment activity.” Further marks the CCI’s opinion on the appropriateness within the context of these services, “Stretching the outer bounds of the securities laws to cover such services would be inappropriate.” The statements capture the essence of the CCI’s assertion that existing laws governing securities investments were not designed for heavily regulated activities like staking, and attempting to force them into such would constitute overregulation.
Clear Guidance on Staking as a Securities Activity
The crypto lobbying group’s submission of this letter highlights the industry’s quest for regulatory clarity on staking. Regulators’ decisions about whether staking is a security activity significantly shape the companies’ offerings and increase services to American customers and compliance risks. This CCI action, along with other actions taken by the crypto industry in the U.S., aims at attempting to influence and proactively respond to the future regulatory framework governing digital assets in the country, especially related to core governance activities like staking, which are essential to the functioning of countless blockchain networks. The comparison with other jurisdictions and the SEC’s own prior pronouncement on mining illustrates the prevailing industry’s position that U.S. regulators owe the digital asset community guidance on the issue of staking.
