This SEC’s staff statement on liquid staking is important because it reduces uncertainty around one of the fastest-growing areas of digital assets. In a typical liquid staking setup, users deposit their crypto with a provider and receive a transferable “receipt” token that reflects both the deposited assets and the rewards earned from the protocol. The staff confirmed that, when designed in this narrow “receipt-style” way, the arrangement does not, by itself, amount to a securities offering.

For businesses, this opens the door to building products and partnerships—whether in custody, collateralization, or integration with other platforms—without automatically triggering securities-registration requirements. For investors, it provides reassurance that these receipt tokens, when kept within the SEC’s described framework, can be used for liquidity and collateral without carrying the legal baggage of being treated as securities. That said, this is staff guidance, not a binding rule, and the details of product design remain critical.

The core message is simple: if the provider’s role is limited to operational tasks—holding the assets, performing the staking, issuing and redeeming the receipts—and the rewards or losses flow directly from the blockchain protocol itself, then the receipt token is not treated as a security. This position is consistent with earlier SEC comments on protocol staking. At the same time, commissioners emphasized caution: small design changes could quickly alter the legal analysis.

There are, however, clear warning signs. Promising or targeting specific returns based on the provider’s own strategies, taking on discretionary yield-seeking that investors rely on, designing tokens that function as separate profit instruments, or bundling liquid staking with revenue-sharing or similar schemes—all of these can shift the arrangement into the realm of an “investment contract” under the Howey test. That, in turn, would trigger securities-law requirements such as registration or reliance on an exemption, along with disclosure duties.

For providers, the practical path is to design products that stay firmly within the “receipt-style” lane. That means spelling out in plain terms that rewards (and any penalties) come directly from the protocol, describing fees and unbonding mechanics clearly, and avoiding any marketing that suggests guaranteed or provider-driven returns. Contracts should focus on custody, minting and redemption, and risk allocation, without granting broad discretion that could later be seen as profit management.

For investors and platforms considering these tokens, due diligence is essential. Go beyond the whitepaper and confirm that the provider’s actual practices remain administrative, and that the receipt tokens truly function as claims on the staked assets and their protocol rewards.

Both providers and investors should remember that this is only staff guidance, and it can change. Commissioners have already warned that even small product tweaks could shift the legal analysis. That makes regular monitoring and legal review essential. By building simple compliance checks into product development, businesses can innovate confidently without accidentally turning a liquid staking service into something regulators might view as a securities offering.

Rule 504 of Regulation D is designed to provide a streamlined exemption for small-scale capital raising by early-stage or non-reporting companies. Unlike Rule 506, which allows unlimited capital raises, Rule 504 is capped at $10 million in aggregate offerings over any rolling 12-month period. This limitation makes Rule 504 especially useful for startups or closely held businesses that are in the initial phases of fundraising and do not require substantial capital injections from institutional investors.

To be eligible for Rule 504, the issuer must satisfy a narrow set of qualifications. First and foremost, it must be a non-reporting company. This means the issuer cannot be subject to the ongoing reporting requirements of the Securities Exchange Act of 1934—such as the obligation to file annual or quarterly reports with the SEC. In addition, the issuer must not be an investment company as defined under the Investment Company Act of 1940. Investment companies, such as mutual funds or hedge funds, are categorically excluded from Rule 504 due to the heightened risk and regulatory concerns they pose. Furthermore, blank check companies are also barred from using this exemption. These are entities that have no concrete business operations and are formed primarily to merge with or acquire an unidentified business in the future—raising unique investor protection issues that render them ineligible for a lightly regulated offering route.

One of the most significant constraints under Rule 504 concerns general solicitation and advertising. As a baseline, the rule prohibits the use of general solicitation in connection with the offering. That means the issuer cannot broadly advertise the offering to the public through newspapers, internet postings, social media campaigns, or public events. However, there are defined and narrow exceptions under Rule 504(b)(1) that permit solicitation in limited circumstances. These include situations where the offering is either registered in at least one U.S. state that mandates public filing and substantive disclosure to investors, or conducted exclusively in jurisdictions that allow general solicitation under a regulatory exemption that also imposes disclosure requirements. In such cases, although federal law permits solicitation, the issuer must still comply with all applicable state-level filing and investor protection obligations. Even where permitted, any general solicitation must be conducted in strict compliance with both federal and state laws to avoid losing the exemption entirely.

This leads directly to another key feature of Rule 504: it does not benefit from federal preemption of state securities regulation. Unlike Rule 506 offerings, which are deemed “covered securities” under the National Securities Markets Improvement Act of 1996 (NSMIA) and therefore exempt from state registration requirements, Rule 504 offerings remain fully subject to state “blue sky” laws. This means the issuer must register the offering in each state where the securities are offered, or qualify for and comply with a state-specific exemption. In practice, this often requires submitting a Form D, paying filing fees, and providing offering materials such as private placement memoranda to state regulators for review. The result is that while Rule 504 may seem simpler at the federal level, it can become complex and fragmented when multiple states are involved.

Despite its streamlined nature, Rule 504 does not impose specific disclosure requirements. The rule does not differentiate between accredited and non-accredited investors in this regard. However, the absence of formal disclosure obligations does not relieve issuers from liability under the federal securities anti-fraud provisions. Any material misrepresentation or omission may still trigger civil or even criminal liability under Rule 10b-5. Consequently, prudent issuers typically prepare a written disclosure document—often modeled after a simplified private placement memorandum—to describe the terms of the offering, the issuer’s business, risk factors, and financial condition. While not legally mandated under Rule 504, such documentation serves as a critical tool in managing legal exposure and demonstrating good faith compliance.

Finally, Rule 504 incorporates the “bad actor” disqualification provisions that are set forth in Rule 506(d). This means that if the issuer, or any of its directors, executive officers, general partners, managing members, or 20% beneficial owners, has been subject to certain disqualifying events—such as securities-related convictions, injunctions, or regulatory orders—the issuer may be barred from relying on Rule 504. The disqualification provisions are triggered by both recent and historical misconduct, with look-back periods ranging from five to ten years, depending on the nature of the event. Notably, even third-party solicitors or placement agents involved in the offering are covered persons under this rule. However, if the issuer can demonstrate that it exercised reasonable care and was unaware of the disqualifying event, a limited exception may apply. The burden of this proof, though, rests squarely on the issuer.

To bring this into focus, consider how our SaaS startup might use Rule 504. Suppose the startup is aiming to raise only $2 million from a mix of angel investors across multiple U.S. states and does not want the compliance burden of verifying accredited investor status. It could structure the offering under Rule 504, assuming it qualifies as a non-reporting company and is not disqualified under the bad actor rules. However, because general solicitation would not be permitted by default, the company would either need to register the offering in each state where it intends to solicit investors or structure the offering in compliance with state exemptions that permit solicitation and require disclosure. Even though no disclosure is required federally, the startup would still likely prepare a simplified investor package to avoid any claim of fraud or omission. In this case, Rule 504 offers an efficient path to early capital but demands meticulous state-level coordination and internal discipline in how the offering is communicated and documented.