The SEC’s approach to crypto staking here seems like a case of square peg, round hole. Their desire to protect investors is certainly understandable. Their current lack of clarity around staking represents a far bigger risk to US innovation than any imagined dangers from the technology. We're not talking about shielding a few speculators here; we're talking about the future of American competitiveness in a multi-trillion dollar industry.

Innovation Leaving US Shores

Let's be blunt. Yet the vague staking rules leave in place significant regulatory hurdles. Second, they act as a bright red flag, driving crypto innovation out of the United States. Think about it: talented developers, blockchain entrepreneurs, and serious investment capital want regulatory clarity. They need it to build sustainable businesses. Right now, the SEC's silence is deafening.

Countries and regions such as the UK, Canada, and Hong Kong are moving forward creating clear, reasonable frameworks for digital assets that would include staking. They’re putting out the welcome mat while we’re still playing with the doorknob. The Crypto Council for Innovation (CCI) and its astroturf coalition of 30 crypto advocacy nonprofits are wrong to raise the alarm. They know that the clock is ticking and that innovation doesn’t wait for anyone. It flows to where it’s cultivated, and currently, that’s starting to look like anywhere but the US. This is not about excluding crypto enthusiasts. It’s important for American jobs, tax revenue, and our leadership in a 21st century industry. If we continue on our current path, we will risk becoming mere spectators, standing on the sidelines while other countries enjoy the benefits of blockchain innovation. Are we really going to allow that to happen?

Ambiguity Kills Economic Opportunity

The SEC’s reluctance isn’t only hindering startups—it’s choking the ability of well-established financial institutions to innovate. Fidelity, Franklin Templeton, VanEck, Grayscale – these are not unsophisticated fly-over bitcoin operations. They're giants of the financial world, and they're all trying to incorporate staking into their proposed crypto ETFs. These companies are in the business of creating new financial products and services—preferably, transformational ones. Secondly, these products allow investors to gain the benefits of exposure to digital assets, as well as earning rewards through staking. The SEC’s ongoing holdups and vague rules are preventing companies from bringing new innovations to market. This continued inaction stifles financial innovation and risks generating millions of dollars in lost returns for investors.

Think about the implications for retirement accounts. Now, picture a future where retirees are able to earn more on their income through staking rewards accrued on crypto assets they’re able to hold in their 401(k)s. That vision is possible, but only if regulators establish a clear and transparent regulatory pathway. The SEC’s current approach isn’t just stifling innovation—it’s making economic opportunity harder to access for millions of Americans. Additionally, the SEC’s call for information on how staking should be classified under federal securities laws was an encouraging sign. We want to see real steps being made to fix this wrong.

Principles-Based Guidance Is the Answer

The good news is that the SEC doesn’t have to reinvent the wheel. As the CCI first recommends, a principles-based approach, much like what they’ve already produced on proof-of-work (PoW) mining, is the answer. This means setting clear standards for staking providers – transparency, security, and consumer protection – without imposing overly burdensome regulations that stifle innovation.

These standards should include clear guidelines on:

  • Disclosure: Staking providers must clearly disclose the risks and rewards associated with staking.
  • Security: Providers must implement robust security measures to protect user funds.
  • Custody: Clear rules are needed regarding the custody of staked assets.

This is not an attempt to allow the Wild West to reign free. It’s about striking the right regulatory balance benefitting responsible innovation and investors.

Here's the unexpected connection: think of the early days of the internet. There may have been early calls for heavy-handed regulation, but in the end a much more hands-off approach let innovation ride its course. The same principle applies to crypto staking. We don’t require a stranglehold, but we do require a light touch. The SEC’s role should be to illuminate and uplift, not stifle. If they don’t, the United States will cede its competitive advantage in the global digital economy. And that’s a risk we just can’t take.