The POSA (Proof Of Stake Alliance) is a not-for-profit industry alliance. On February 21, it published two white papers that discuss the legal aspects of liquid staking. These white papers are the result of the collaboration of 10 experts from different organizations in the sector.
Liquid staking, according to POSA
Also known as “liquid staking”, liquid staking earns rewards for holding tokens. For its part, POSA prefers the term “liquid staking token” instead of the term “liquid staking derivative” which it considers to be inaccurate.
Concretely, it is a technique for generating transferable receipt tokens as part of a Proof of Stake (PoS) consensus mechanism on blockchains. It demonstrates ownership of staked crypto assets or accrued incentives.
POSA White Papers: Two Must-Know Fundamentals
In his two white papersPOSA emphasizes two essential points:
- The first: the staking agreement is only taxable if there is a sale or other disposition of crypto-assets in exchange for goods. These differ significantly in nature or extent. In this case, there is what is called “realization of an asset” which is in line with the taxation of capital gains.
- The second: liquid staking does not in any way represent a security. This is not an investment contract.
According to the authors of the POSA white papers, liquid staking does not meet any of the 4 criteria defined by the Howey test. This is an analysis technique developed by the SEC.
Lately, we often hear about liquid staking within the crypto community. But because of the regulatory vagueness, crypto companies and the SEC interpret in their own way the few texts likely to govern it. The POSA white papers can therefore serve as a basis for developing more precise and clear laws on liquid staking.
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