Law Schools Urge SEC to Regulate Cryptocurrency Staking Rules

• The SEC was urged to review staking ads and restrict fake yield promotions from platforms.
• Law schools proposed a fee cap of 5 percent and open data tools for all crypto staking.
• Risks from liquid staking and restaking need full SEC review before they impact users.
  

A coalition from UC Berkeley School of Law, Georgetown Law Center, and the University of Chicago Law School met with the SEC’s Crypto Task Force on June 23. They urged the agency to create rigorous standards for crypto staking, including clearer definitions, caps on returns, and improved investor disclosures. Joined by venture capital firm Placeholder, the delegation offered detailed proposals designed to close regulatory gaps in current staking practices.

The meeting followed the SEC’s staff bulletin dated May 29, which clarified that most non-custodial and delegated staking activities do not require registration. While seen as progress, the law schools argued that more oversight is needed. Their goal was to protect retail investors and prevent centralized platforms from rebranding yield-generating services as compliant staking products.

They proposed strict use of the term “staking,” recommending that only platforms offering protocol-level validation use it legally. Furthermore, they advised mandatory review and approval by the SEC for any entity advertising staking services.

Defined Terms, Capped Fees, and Transparency Tools

The delegation, organized under Berkeley’s Blockchain and Law at Berkeley (BLAB), drew parallels to the SEC’s mutual fund “80% names rule.” This rule requires funds to hold at least 80% of assets in line with their advertised focus. Similarly, they suggested staking services should meet minimum criteria before using the term, helping eliminate yield-farming schemes disguised as staking.

Dissuading abuse, a cap was put forth for advertised returns with respect to protocol reward rates. Operators would also be placed under a 5% fee limitation, save for instances where they could adequately support greater expenses with proper financial documentation. These economic guardrails intend to disperse any expectations of an unreasonable return that could mislead new users.

At the meeting, another proposal from BLAB would standardize real-time disclosures. Within blockchain wallets and dashboards, key data on gross yield, validator fees, net payouts, and slashing risks would be displayed. This would give users real-time insight into staking conditions and allow a fair comparison between providers. 

They stressed that validator software should be open-source. This permits the user and developer community to understand how validation is performed and to avoid validation processes being secretly controlled by centralized actors. Such access would encourage open review by the whole blockchain community and subsequently help reduce systemic risk.

Related: Thailand SEC Opens Consultation on New Crypto Listing Rules

Can the SEC Bridge the Risks of Liquid and Restaking?

While protocol staking received clarity, liquid staking remains largely unregulated. Law schools warned that token wrapping and rehypothecation in liquid staking products create complex layers of exposure. These arrangements could confuse users and hide underlying risks.

Restaking platforms, where staked tokens are utilized multiple times across systems, were also a matter of concern for the group. These setups can leave the entire ecosystem open to collapse should one component shut down. They, therefore, advised that such cross-platform vulnerabilities be addressed in the future.”

In their written memo, they stated, “Disclosure alone cannot address the risks that stem from centralization and rehypothecation.” To address this, they proposed on-chain systems that display validator dominance, censorship behavior, slashing records, and geographic control.Finally, they recommended restrictions on stakeholder advertisements. Products offering liquid staking should not claim regulatory compliance unless they meet SEC rules. Joel Monegro from Placeholder and faculty from Berkeley Law led the presentation. They also committed to supporting future rule development in collaboration with the Commission.

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