The industry non-profit organization Proof of Stake Alliance (POSA) has published two white papers with a legal study of liquid staking in accordance with US 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 work speakers from more than a dozen projects led by representatives of Alluvial and Lidoas well as the law firm of Willkie Farr & Gallagher.
Based on the analysis, the experts came to a number of conclusions. In their opinion, liquid staking tokens (LST) is incorrectly referred to as “derivatives” as this is inconsistent with the nature of their relationship with the underlying asset.
POSA also believes that LSTs should not be considered investment contracts or promissory notes and therefore qualify as securities. According to the documents, the experts confirmed this conclusion with the help of howie test. They noted that LST does not apply to swaps either.
The conversion of crypto assets into liquid staking tokens is not a taxable event under US law, POSA experts believe.
Based on the study, the organization formulated four principles for industry self-regulation:
- designate tokens as LST, not derivatives;
- develop direct staking instruments with access to liquidity, rather than income-generating products based on LST;
- focus on promoting liquidity expansion without sacrificing security;
- refrain from providing investment advice.
“As an organization, we believe that the industry makes more political progress together than apart. Due to recent activities SEC against staking providers, we believe that revisiting and updating our industry guidelines to reflect innovation will help bring stakeholders together to protect their interests,” said Alison Mangero, head of POSA.
Recall that in early February, the Kraken exchange, as part of the settlement of charges from the SEC, agreed to close the staking service and pay a $30 million fine. The regulator classified the services as an unregistered securities offering.
The head of Coinbase, Brian Armstrong, said that the company is ready to challenge such claims of the Commission in court.
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