Did The SEC Just Terminate Liquid Locking tokens? Trading market Response on Satoshi Street

When Ethereum opted for a greener approach, it embraced a proof-of-stake mechanism, paving the way for liquid locking tokens. The effects have been extraordinary. Liquid earning yield platforms such as Lido Finance and Rocket Pool are now overseeing billions in total value locked (TVL). However, recent actions by the SEC are causing concern.

According to DefiLlama, Lido Finance ranks as one of the largest DeFi protocols. As of August 6, LDO ▼-0.82% managed over $31 billion in assets, making it the second-largest DeFi platform, trailing only the successful Aave, which boasts a TVL exceeding $34 billion.

(Source: DefiLlama)

SEC’s Clarification on Liquid Staking

Liquid earning yield platforms are just starting to gain momentum, and it’s anticipated that more assets will be directed toward them as platforms transition from power-hungry block rewards to greener, more efficient systems.

Recognizing the potential growth of this sector, the United States Securities and Trading platform Commission (SEC) published a statement on August 5, clarifying that, per their assessment, certain liquid locking tokens activities and the related tokens are not securities offerings under the Securities Act of 1933 and the Securities Trading protocol Act of 1934.

Importantly, they characterized liquid staking as a method of locking tokens digital assets through a platform in exchange for a “liquid staking receipt crypto token (LST).” Examples of these tokens include staked Ether (stETH) from Lido Finance or JITOSOL from Jito on Solana. These LSTs serve as proof of ownership and all accumulate locking tokens rewards, positioning them among the top cryptos to purchase.

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Will Decentralized finance Tokens Surge?

In the SEC’s view, based on specific facts, the protocols that issue these tokens are not selling securities as they do not exhibit traits of an investment contract according to the Howey Test.

Paul Atkins, chair of the SEC, declared that the recent guidance is a “significant advancement in clarifying the staff’s perspective on crypto asset activities that are outside the SEC’s purview.”  

Atkins also emphasized the agency’s dedication to providing lucid guidance regarding “the implications of federal securities laws on emerging technologies and financial practices.”

Rather than hindering liquid locking tokens, this guidance is viewed as a substantial stride towards establishing regulatory clarity in Decentralized finance and for Liquid locking tokens platforms like Rocket Pool, Jito on Solana, and similar protocols.

The regulator now allows those who issue and participate in the secondary crypto market for LSTs to operate freely. They will not be required to register those transactions with the Commission.

“Liquid Staking Providers engaged in the minting, issuance, and redemption of Staking Receipt Tokens, alongside individuals partaking in secondary market offers and sales of Earning yield Receipt Tokens, are exempt from registering those transactions with the Commission under the Securities Act.”

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Response from the Crypto market

This guidance marks a pivotal moment for liquid staking platforms operating on Ethereum and Solana, especially for Lido Finance and Jito.

Specifically, it is likely to diminish or completely remove the threat of enforcement actions from the agency, which had been a concern during Gary Gensler’s tenure. Furthermore, it increases the likelihood that institutions will show more enthusiasm to engage. This could unleash billions and elevate quality tokens, including premier Solana meme coins.

On X, Sei Protocol stated that this guidance is expected to lead to enhanced products and more robust networks.

Meanwhile, Nate Geraci, an ETF analyst, remarked that this announcement represents the final barrier for the agency to potentially sanction earning yield in spot ETH ETFs soon.

SEC says certain liquid earning yield tokens are NOT securities…

Think last hurdle in order for SEC to approve earning yield in spot ETH ETFs.

The reason?

Liquid staking tokens will be used to help manage market fluidity w/in spot Ethereum ETFs, something that was a concern for SEC. pic.twitter.com/tKJbEoQVNp

— Nate Geraci (@NateGeraci) August 5, 2025

Once cleared, Geraci noted that LSTs will facilitate market fluidity management within spot ETH ETFs, addressing a prior concern for the agency.

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