Why Non-Custodial Staking Isn’t a Security—and Why It Matters for Blockchain’s Future

As U.S. regulators continue to weigh the legal status of crypto staking, Everstake made its position clear to the SEC’s Crypto Task Force: Non-custodial staking should not be classified as a securities transaction. Labeling it as such, they argue, threatens innovation at the core of blockchain infrastructure.

On May 29, 2025, the SEC released a statement clarifying that self-staking, non-custodial staking, and certain custodial staking models do not fall under securities regulations. 

The agency noted that these actions do not rely on the managerial efforts of others and are not structured as investment contracts under the Howey Test.

In an interview with CCN, Margaret Rosenfeld, Everstake’s Chief Legal Officer, explained why non-custodial staking should remain distinct from financial securities and how ongoing regulatory uncertainty disrupts blockchain progress.

What Is Non-Custodial Staking?

Rosenfeld emphasized a key technical and legal difference when asked how to define non-custodial staking.

“Non-custodial staking is a method of participating in blockchain security without ever surrendering control of your digital assets,” she said.

Users delegate validation rights to a third-party validator like Everstake, but ownership and custody remain with them. The assets stay in the users’ wallets or smart contracts they control, meaning they can revoke access at any time.

Rosenfeld said this setup is critical from a legal standpoint:

“There’s no transfer of control, no pooling of funds, and no reliance on managerial discretion. It’s a technology service—not a financial product.”

The Regulatory Blind Spot in Staking Policy

According to Everstake, more than $193 billion is currently staked across major (PoS) networks. Rosenfeld explained one of the biggest obstacles the industry has faced:

“Many regulators come from backgrounds rooted in traditional finance or law, where intermediaries manage customer assets. In staking, especially non-custodial models, those assumptions don’t apply.”

She compared it to explaining the technical distinction between running an email server and using Gmail. “It’s technical infrastructure, not a financial relationship,” she said.

What’s at Stake: Decentralization vs. Financial Control

If regulators were to treat non-custodial staking as a securities transaction, Rosenfeld warned, it could dismantle one of blockchain’s core principles: decentralization.

“Staking isn’t optional—it’s how proof-of-stake networks validate transactions and stay secure.”

The concern is that a securities designation would impose expensive compliance burdens that smaller users and infrastructure providers can’t meet. That would hand the keys of blockchain participation to large institutions.

“We’d be turning a core network function into something only large financial institutions could legally participate in—contrary to the open-access ethos of blockchain.”

Inside Everstake’s Memo to the SEC

In a formal memo to the SEC, Everstake outlined three central arguments:

• Non-custodial staking fails the Howey Test: There’s no investment of money into a common enterprise, and users don’t expect profits based on another party’s managerial efforts.
• User control remains absolute: Assets are never handed over to Everstake; risk is tied to the performance of the blockchain protocol itself.
• Rewards are automated: They are dictated by the network protocol, not Everstake’s discretion.

The memo also urged the SEC to issue guidance similar to its clarification on proof-of-work (PoW) mining.

“Staking is core infrastructure, not speculation.” She believes that clear policies can preserve user protections while supporting innovation in the U.S.

Non-Custodial vs. Custodial Staking: A Critical Comparison

Rosenfeld drew a sharp contrast between non-custodial and custodial models.

With Everstake’s system:

• Users keep private key control at all times.
• Assets stay in users’ wallets.
• Rewards go directly from the protocol to users.
• Unstaking is immediate, without permissions.

In contrast, custodial staking means handing over assets to a third party, introducing risk and reducing transparency.

“Technically and ethically, our approach functions more like decentralized infrastructure than traditional financial services.”

The Most Overlooked Question in Crypto Staking

Rosenfeld pointed to one question journalists often fail to ask: “Who decides when and how you can access your staked tokens?”

In custodial systems, the platform decides, while in non-custodial models, it is the user. That difference, she said, defines autonomy and decentralization.

“It’s not just a technical detail—it’s the line between decentralization and dependency.”

Infrastructure, Not Investment

She emphasized that non-custodial staking is not a financial product. It is the infrastructure that powers decentralized finance. 

Misclassifying it would create legal confusion and break the systems that keep proof-of-stake networks secure.

Reacting to the update, Everstake welcomed the SEC’s  clarification:

“The SEC’s recent Statement on Certain Protocol Staking Activities confirms what we’ve long argued: non-custodial, self-staking and certain custodial staking transactions are not securities transactions. This is a significant win for the industry and a clear recognition that technological participation in network security fundamentally differs from financial speculation.”

Rosenfeld said the company remains committed to engaging with regulators around the world. She called for cooperation to protect users, ensure market integrity, and promote responsible innovation.