Ethereum staking has long been known to draw the attention of the U.S. Securities and Exchange Commission. While the long-term impacts of the agency's crackdown on staking are still uncertain, early responses indicate significant regulatory shifts ahead.
The regulator also launched an investigation into Ethereum 2.0 after the network changed its consensus mechanism to Proof-of-Stake from Proof-of-Work. The SEC had been vague about whether it considered ether a security, with the agency sometimes seeming to suggest all PoS tokens were securities because of the rewards users expect to get if they stake their tokens. But the Commodity Futures Trading Commission also viewed ether as falling under its purview, further complicating the matter.
Maybe more surprising was that the suit also named Lido and Rocket Pool’s staking programs as securities. It is less common for the SEC to go after big-name DeFi protocols, although the tides have been shifting after the agency sued Uniswap, which some noted as the start of the “war on DeFi.” While the SEC’s stance on staking was well known, its targets had remained centralized staking service providers.
On June 6, 2023, when Coinbase was sued over its staking program, there was a surge in cbETH burns as users exited the platform over the uncertainty of its future. At the time, it was the second largest day of redemptions, following April 13, when withdrawals of staked ETH were first enabled with the launch of Shapella.