SEC Greenlights Liquidity Staking, a Moment of Capital Restructuring for DeFi and Wall Street

I. Regulatory "Watershed": Why Did SEC Back Down on 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 Guide", for the first time explicitly stating that liquid staking tokens (LST) in specific scenarios do not constitute securities issuance, and related service providers do not need to register under the Securities Act. The subtext of this guide is that the staking ecosystems of mainstream public chains like Ethereum and Solana have finally obtained a "compliance pass".

SEC's core logic lies in the segmentation of economic substance:

• Staking receipt tokens (such as stETH, mSOL) serve only as "ownership certificates", and their issuance and trading do not involve "investment contract" attributes. As long as users' deposit of crypto assets is independent of any promise of "profiting from others' efforts", it does not trigger the Howey Test.
• Clarification of regulatory boundaries: SEC specifically named protocols like Lido, Marinade Finance, and JitoSOL as meeting exemption conditions, as their functions are limited to "administrative services" (such as token minting, reward distribution), rather than active management or profit guarantees.

Behind this transformation is a dual game of politics and market:

• SEC Chairman Paul Atkins has changed the previous chairman's "law enforcement regulation" style, promoting the "Project Crypto" plan, viewing staking as a "network security service" rather than a speculative tool.
• The pressure from the CLARITY Act: Congress intends to exclude node operations, staking, and self-hosted wallets from the definition of "securities broker", forcing SEC to seize rule-making rights.

II. Dissecting Liquid Staking: Why Is It the "Liquidity Engine" of DeFi?​​

1. Mechanism: From Asset Lockup to Capital Fragmentation​​

Liquid staking allows stakers to use alternative tokens to maintain the liquidity of their staking tokens and potentially earn additional yields through DeFi protocols.

Before delving into liquid staking, let's understand staking and its related issues. Staking involves locking cryptocurrencies in a blockchain network to maintain its operation and enable stakers to earn rewards. However, staked assets typically become illiquid during the staking period as they cannot be exchanged or transferred.

Liquid Staking enables cryptocurrency holders to participate in staking without surrendering control of their held assets. This fundamentally changes how users stake. Projects like Lido introduced liquid staking, providing tokenized representations of staked assets in the form of tokens and derivatives.

It allows users to obtain the advantages of staking while retaining trading flexibility, enabling these tokens to be traded in decentralized finance (DeFi) applications or transferred to other users.

2. The "Power Struggle" with Delegated Staking​​

In Delegated Proof of Stake (DPoS) networks, users elect representatives through voting. However, liquid staking aims to help stakers circumvent minimum staking thresholds and token locking mechanisms.

While DPoS borrows from Proof of Stake (PoS), its implementation differs. In DPoS, network users can elect representatives called "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. Network users in DPoS can concentrate their tokens in a stake pool and use their collective voting power to elect their preferred representatives.

On the other hand, liquid staking aims to lower investment barriers and provide stakers with a way to circumvent token locking mechanisms. Blockchains typically have minimum staking requirements. For example, Ethereum requires anyone wanting to establish a validator node to stake at least 32 ETH. It also requires specific computer hardware, software, time, and expertise, which similarly demands significant investment.

This model has ignited market growth: the total value locked (TVL) of liquid staking protocols has exceeded $67 billion, with Ethereum accounting for 76% ($51 billion), and Lido monopolizing 31% of the market share.

III. How Liquid Staking Works

Liquid staking aims to eliminate staking barriers, enabling holders to profit using liquidity tokens.

Stake pools allow users to use smart contracts to merge multiple small stakes into a large stake, with smart contracts providing corresponding liquidity tokens representing each stake holder's share in the pool.

This mechanism eliminates the barriers to becoming a staker. Liquid staking goes further, enabling stakers to earn double rewards. On one hand, they can profit from staked tokens; on the other hand, they can profit by using liquidity tokens for trading, lending, or any other financial activity without affecting their original staking position.

Using Lido as an example will help us better understand how liquid staking works. 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 brought by traditional PoS staking by effectively lowering entry thresholds and reducing the costs of locking assets in a single protocol.

Lido is a smart contract-based staking pool. Users deposit assets into the platform and can stake through the protocol on the Lido blockchain. Lido allows ETH holders to stake even a small portion below the minimum threshold (32 ETH) to obtain block rewards. After depositing funds into Lido's staking pool smart contract, users receive Lido Staked ETH (stETH), an ERC-20 compatible token generated upon deposit and burned upon withdrawal.

The protocol distributes staked ETH to validators (node operators) in the Lido network, which is then deposited into the Ethereum beacon chain for validation. These funds are then saved in a smart contract that validators cannot access. ETH deposited through the Lido staking protocol is divided into 32 ETH collections, maintained by active node operators on the network.

These operators use public validation keys to validate transactions involving user staked assets. This mechanism allows users' staked assets to be distributed across multiple validators, thereby reducing single point of failure and risks associated with single validator staking.

Stakers can deposit Solana's SOL, MATIC, DOT, KSM, and other tokens 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.

IV. The "Domino Effect" of SEC Guidelines: Who's Celebrating? Who's Cautious?​​

1. Institutions: From Bystanders to "Staking Whales"​​

• ETF Issuer's Staking Revolution: Rex Shares Leads the Way with the First U.S. Solana Staking ETF, Holding SOL Through Cayman Subsidiary with at Least 50% Staked Position; BlackRock, VanEck, and Other Ethereum ETF Applicants Urgently Revising Plans to Include Staking Clauses - Analysts Predict Over 95% Approval Probability.
• Listed Companies' "Hoarding and Earning" Trend:
• Bitcoin Mining Company Bit Digital Clears Out Mining Machines, Shifts to Ethereum Staking;
• SharpLink Gaming Stakes 198,000 ETH (Approximately $500 Million) in Full, Earning 102 ETH in a Single Week;
• BitMine Raises $250 Million to Establish ETH Staking Fund, Managed by Wall Street Veteran Tom Lee.

Wall Street's New Calculation: Treasury Yield Only 4%, While Staking ETH Offers 5% Yield + Asset Appreciation Potential - This is the Crypto Version of "Fixed Income+".

2. DeFi's Compliance Turning Point

• LST's "Secondary Market" Explosion: Institutions Can Incorporate stETH and Other Tokens into Balance Sheets or Use as Derivative Collateral. Alluvial CEO Predicts: "Securities Exemption for Staking Tokens Will Spawn a Trillion-Dollar On-Chain Government Bond Market".
• Retail Entry Revolution: Robinhood Has Opened ETH and SOL Staking to U.S. Users; Kraken Enables Non-Custodial Bitcoin Staking via Babylon Protocol (User's BTC Remains on Mainnet, Earning Yield Through Tapscript).

Endgame: When Wall Street Takes Over the Staking Empire

SEC's Approval is Essentially a Prelude to Institutional Compliance:

1. Staking as a Service (StaaS) Will Replace Retail Mining, Becoming a Standard Allocation for Asset Management Giants Like BlackRock and Fidelity;
2. LST Derivatives (Such as Futures and Options) Will List on CME and ICE, Attracting Hedge Funds to Hedge Staking Yield Fluctuations;
3. Sovereign Funds' Entry: Funds from the UAE and Others Are Testing Staking ETFs, Viewing Them as "Digital Sovereign Bonds".

And the Ultimate Goal is to Transform Ethereum, Solana, and Other PoS Chains into Global Capital's "Digital Bond Market" - Where Staking Yield is the New Treasury Yield, LST is the New T-Bills, and the SEC's Stamp is Merely the Key to Wall Street's Vault.

History Never Repeats, But Rhymes: In 1688, Underwriters in London Coffee Houses Guaranteed Wealth for Overseas Merchant Ships; In 2025, SEC Guaranteed the Safe Passage of the Code Ocean with a Single Guideline.