- Charles Hoskinson affirms ADA staking doesn’t meet the Howey Test requirements
- Cardano’s native staking differs from liquid staking service provider models.
- SEC Project Crypto initiative drives new regulatory clarity for blockchain.
Charles Hoskinson has asserted that Cardano’s ADA staking protocol is, under federal law, not a security. The Input Output CEO made the statement after the SEC’s Division of Corporation Finance released new guidance on liquid staking, which raised fresh concerns in the crypto community.
The clarification comes amid the SEC’s broader Project Crypto initiative, which aims to modernize financial regulations to better align with blockchain-based technologies. The guidance distinguishes between different staking models and their regulatory implications for cryptocurrency owners.
Native Staking Model Evades Securities Classification
Cardano’s native staking system runs as part of the blockchain’s consensus layer. This enables ADA token holders to delegate tokens to staking pools without giving away ownership. This native process varies from liquid staking services using third-party intermediaries and receipt tokens for staked assets.
The ADA delegation process enables users to earn rewards for their involvement in network security without surrendering ownership of their tokens. Stakers can freely withdraw or redelegate their tokens at their discretion without any restriction or penalty imposed by service providers.
Hoskinson contends that indigenous ADA staking does not satisfy the Howey Test requirements since users do not invest in a shared enterprise in anticipation of returns from others’ work. Token holders, rather, directly engage in network consensus through delegation decisions and are rewarded for protocol security input.
Liquid Staking Services Face Different Treatment
The SEC guidance is directed at liquid staking arrangements in which staked assets are under service provider custody and receipt tokens are emitted as claims to future rewards. These arrangements may encompass profit expectations under service provider management and operating discretion.
Legacy liquid staking platforms pool user funds, take staking positions in the customers’ names, and distribute returns according to platform performance. This centralization has potential securities law implications under investment contract analysis.
Cardano’s delegation mechanism bypasses this issue through direct staking pool participation with no third-party asset control. The users maintain sovereign ownership while decentralizing the network through delegation decisions.
ADA Holders Have Regulator Confidence
Regulatory certainty is the basis for ADA holders trust in staking activity unencumbered by securities law complexities. Cardano’s proof-of-stake consensus algorithm has been in place for years without regulatory complications, but official guidance removes lingering uncertainty.
Institutional investment can now evaluate ADA staking with greater legal certainty, and therefore, it is likely to promote greater adoption by risk-averse institutions. The distinction between native staking and liquid staking services also provides distinct operational separation. Hoskinson’s comment reiterates Cardano’s compliance strategy towards regulation and differentiates the protocol from others that offer liquid staking services.
Related: Over 1,000 Devs on Its Devnet, Cardano’s Midnight Shows Early Traction
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
