We Need to Reclaim the Narrative on Staking

A year ago, a major event called the Merge took place, rapidly improving how Ethereum operates. While this engineering feat made Ethereum more energy efficient and capable of handling more transactions at faster speeds, it also caused certain U.S. federal regulators to pay greater attention.

Last year, SEC Chair Gary Gensler Gary Gensler suggested that transitioning to proof of stake might make ether a security. Gensler said allowing tokenholders to stake tokens results in “the investing public anticipating profits based on the efforts of others” and further that “offering staking services to its customers “looks very similar — with some changes of labeling — to lending.”

This op-ed is part of CoinDesk’s Staking Week, sponsored by Foundry.

As someone who spends her time educating lawmakers about crypto and PoS technology, these statements showed that there was a critical need for us to educate lawmakers, regulators and the general public on the distinctions between crypto lending and securing a protocol.

Nearly two months later, the implosion of FTX heightened regulatory scrutiny of the industry in general, and eventually staking-as-a-service (StaaS) programs specifically. In February, the SEC announced an enforcement action against digital asset exchange Kraken related to their custodial staking services. The agency put other StaaS providers on notice that they need to “come in and register.” Later, the SEC sued digital asset exchange Coinbase on a number of counts, including the allegation that Coinbase’s staking services are unlawful. Then several state regulators alleged that Coinbase violated securities laws by offering “staking rewards programs” to residents without registration.

Read more: The State of Staking: 5 Takeaways a Year After Ethereum’s Merge

This past July Senate Finance Committee Chairman Ron Wyden and Finance Committee Ranking Member Mike Crapo specifically requested comments on taxation of digital assets with a section devoted to the taxation of staking rewards. Industry leaders and trade groups including POSA, the Blockchain Association, CCI, Polygon Labs, Coin Center, and others solidified the near universal agreement of industry that staking rewards should be taxed like all other created property: at the time of sale, not at the time of…