The industry non-profit organization Proof of Stake Alliance (POSA) published two white papers with legal research on liquid staking in accordance with U.S. law.
Our two white papers published today provide legal research & analysis of liquid staking tokens.
They reason that LSTs for digital commodities should not be treated as securities, swaps, or taxable events, & define industry principles for responsible growth.
?Here’s a summary
— Proof of Stake Alliance (POSA) (@TeamPOSA) February 21, 2023
Authors of the papers were specialists from more than a dozen projects led by representatives from Alluvial and Lido, as well as the law firm Willkie Farr & Gallagher.
Based on the analysis, the experts arrived at a number of conclusions. In their view, liquid staking tokens (LST) should not be called ‘derivative instruments,’ as that does not reflect the nature of their relationship with the underlying asset.
POSA also contends that LST should not be considered investment contracts or notes, and therefore should not be classified as securities. According to the documents, the experts confirmed this using the Howey test. They noted that LST does not fall under swaps either.
Converting crypto assets into liquid staking tokens is not a taxable event under U.S. law, the POSA experts say.
Based on the study, the organisation formulated four principles for industry self-regulation:
- label tokens as LSTs, not derivatives;
- develop direct staking tools with access to liquidity, rather than yield-generating products based on LST;
- focus on promoting liquidity expansion without compromising security;
- refrain from giving investment advice.
‘As an organisation, we believe that together the industry makes greater political progress than apart. In light of the SEC’s recent actions against staking providers, we believe that revisiting and updating our industry principles to reflect innovation will help unite participants to safeguard their interests,’ said POSA head Allison Mandjaro.
Earlier in February, Kraken, under a settlement with the SEC agreed to shut down the staking service and pay a $30 million penalty. The regulator classified the service as an unregistered securities offering.
Coinbase chief Brian Armstrong said the company is prepared to challenge such statements by the Commission in court.