7th August 2025 > > LSTs.

tl;dr

Regulatory clarity in the US for LSTs, points the way forward for tax arbitrage in the UK. But that is not all – the new regulatory statement removes another barrier to wholesale crypto adoption by institutional money.

Market Snap 

Market Wrap

The four-day losing streak by the spot BTC ETFs was broken yesterday. Long may that continue.

Leveraged shorts are getting over their skis again, increasing the risk of a short squeeze higher.

Curious Cryptos’ Commentary – Regulatory clarity

Improvements to the regulatory landscape are coming thick and fast in the US.

The SEC issued a statement on the topic of liquid staking:

https://www.sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525

For those unfamiliar with the concept of liquid staking, it really isn’t as complicated as some like to make out.

For PoS (proof-of-stake) coins, a validator will issue an LST version of the coin in exchange for the native coin. This LST represents a claim for an amount of the native coin, plus staking rewards which accrue as time goes by. Its value increases relative to the native coin, at a rate very similar to that you would receive if you simply staked. LSTs however have two key advantages. The LST remains liquid (the clue is in the name, usually) allowing for further use in DeFi, plus the ability to sell at any time you choose. For degens out there, you can pledge your LST for, say, USDC, buy more of the native token, swap for the LST, and rinse and repeat. I certainly do not recommend such a high-risk strategy, but for some that is an attractive proposition.

Not all LSTs are created equal. The liquidity can be sparse (I am thinking about variations on TON in particular) – after charges and the slippage caused by a lack of depth in the pool, some LST TONs result in a net loss, which clearly isn’t the best of outcomes. But that doesn’t take away from the fact that LSTs are a very fine invention that could only come about because of DeFi, powered by cryptos. There can be no equivalent within the TradFi world.

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And that is probably the reason that under the previous reign of terror at the SEC, there was never clear guidance as to the regulatory position of LSTs. That has now all changed:

“It is the Division’s view that “Liquid Staking Activities” (as defined below) in connection with Protocol Staking do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”). Accordingly, it is the Division’s view that participants in Liquid Staking Activities do not need to register with the Commission transactions under the Securities Act, or fall within one of the Securities Act’s exemptions from registration in connection with these Liquid Staking Activities.”

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Note that in the UK, swapping from a native token to the LST is a taxable event for capital gains, which could be a very useful tool for mitigating your tax liability in some situations.

For example, if you were expecting a capital loss during a tax year, you would not be in a position to take advantage of the annual CGT relief. Losses are rolled forward, but that CGT relief is lost if it is not used. Swapping from the native coin to the LST to realise profit that covers not only your other losses, but also the annual exemption, leaves you better off with (almost) exactly the same risk profile.

Cryptos are truly amazing, on so many levels.

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There are greater ramifications than that simple tax arbitrage in the UK.

The inclusion of staking within spot ETH ETFs is undoubtedly a done deal now, and will be made more efficient by the use of LSTs:

Abdul Rafay Gadit, co-founder of L1 ZIGChain, identifies another very important facet of the new guidance regarding LSTs:

"The SEC’s liquid staking guidance represents a fundamental shift in how institutional capital can interact with blockchain networks, moving beyond the regulatory gray area that has constrained a potentially massive market segment. The agency has essentially legitimized institutional treasury strategies that were impossible under enforcement-driven uncertainty. This means pension funds and asset managers can now earn staking rewards (typically 5%-15% annually) while maintaining immediate access to their capital through tradeable receipt tokens — solving the liquidity problem that previously made blockchain staking incompatible with institutional treasury requirements."

There you go – one more barrier to wholesale adoption of cryptos by institutional money has now been thoroughly dismantled.

Well done, Paul Atkins, the recently appointed new Chair of the SEC.