Staking is not a security
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An SEC commissioner has come out with a new statement saying that there's no investment contract created when someone participates in staking.
Why it matters: Participating in staking — the process of collectively insuring the security and accuracy of a blockchain network — is vital for network consensus, not to mention an easy way for people to passively earn some yield.
- Determining that the practice constitutes an investment contract — which the prior SEC did — makes it a security and subject to SEC regulations.
- And the previous SEC leadership was critical of staking.
The latest: "Uncertainty about regulatory views on staking discouraged Americans from doing so for fear of violating the securities laws. This artificially constrained participation in network consensus," Crypto Task Force chair Hester Peirce writes in the new statement last week.
How it works: Staking is a way to provide decentralized security for a network, one favored by many of the newer chains. (Bitcoin takes a different approach.)
- Participants post some of the native coin of the network in order to participate in staking and earn network rewards for doing so.
- The point of the stake is this: If members of the network determine a participant is failing in their responsibilities or acting maliciously, their stake can be taken.
- Risking that is what gives participants confidence in the work of these strangers on the internet sharing in the checking and doublechecking of a blockchain network's accuracy.
What we're watching: Ethereum ETFs.
- Holders of ether ETFs are missing out on significant yield due to the fact that issuers of these instruments have not been permitted to participate in staking on the world's second largest blockchain.
