Proof of Stake Alliance (POSA)

This past weekend, Proof of Stake Alliance (POSA) submitted a comment to the Treasury Department and IRS on the proposed “broker” reporting rule. Though many others have commented EXTENSIVELY on the broader issues with the proposed rule (over 124,000 comments received at the time of writing!), as always, our comment focused more narrowly on issues affecting staking and proof-of-stake ecosystems. While there is an exception to the proposed rule for those who provide “validation services,” the creation of the category of “digital asset middlemen” means there is, in effect, an exception to the exception to the rule. Those providing “validation services” (which aren’t clearly defined) cannot provide “other functions or services” without risk of being treated as a broker.  This vague language leaves open the possibility that many validation services and software providers, including staking-as-a-service providers and liquid staking protocols may be deemed “brokers” by virtue of providing things as common as a graphical user interface (front end), slashing coverage or a cryptographic receipt token, among other things.  ⚡ In short, the proposed exception to the exclusion for validation services would swallow the rule. Despite the Act’s statutory text and Congressional intent, the Treasury Department and IRS offer an exclusion for validation services and software providers that would seemingly apply to few if any persons actually offering such services and software.  Based on this, POSA believes that the proposed rule, if adopted in its current form, would have a significant adverse impact upon both proof-of-stake blockchains and holders of the digital assets that operate on these networks.  We therefore urged the Treasury Department and IRS to make clear that StaaS Providers and liquid staking providers are persons that solely engage in the business of providing validation services and are therefore not “brokers,” irrespective of whether such persons offer “other functions and services” related to validation. Of course, much more should be said about the proposed rule, its scope, and other ways it captures players such as DeFi protocols, non-custodial digital wallet providers and others.  We’re proud to work alongside those making those arguments, and are thankful to Michael Selig, Justin Browder and the team at Willkie Farr for helping us to craft our arguments. You can read our full comment letter here:

Today the Proof of Stake Alliance (POSA) is proud to announce our updated set of Staking Industry Principles supported by Alluvial, Ava Labs, Bitcoin Suisse AG, Blockdaemon, Coinbase, Credibly Neutral, Figment, InfStones, Kiln, Lido Finance, Luganodes, Methodic Capital Management, Obol Labs Inc., Polychain Capital, Paradigm, RocketPool, Staking Rewards, and Swell Labs. The release of these updated Industry-Wide Staking Principles follow the original set of principles we published in 2020 after our collaborative meetings with the SEC. Since then the staking industry has grown and matured. Proof-of-stake blockchains include 19 of the top 20 smart contract platforms, with millions of users globally, representing a market cap of over $250 billion USD as of September 2023. And as the growth of proof-of-stake protocols has accelerated, so has the percentage of Americans engaging with cryptocurrencies. According to a recent survey, the number of American adults who own cryptocurrencies has grown to more than 52 million Americans. This rise in growth can’t be ignored. At the same time, the word staking has at times been co-opted or conflated with lending. But as our friends at Consensys remind us, staking is data validation not investment. Staking is about securing proof-of-stake blockchains, which depend on the technology for their security and accuracy.  True staking is a purely technical activity, which means any actor that wishes to stake must take on the responsibility of participating in this technical process. Our collective goal is to ensure that staking is better understood, and that technical services related to staking and block production are treated similarly to operating any other technical service providers. In short, there should be: ✅ Clear communication from service providers to ensure users have all the information necessary to make informed decisions. ✅ User control over how much of their assets to stake. Users should be able to opt in and service providers should focus on providing access to the protocol and user ownership of staked assets. ✅ Explicitly delineated responsibilities for service providers. They should not manage or control liquidity for users, or provide guarantees on the amount of rewards earned. We’re confident our updated principles will enhance consumer protection, foster responsible innovation, and support the sustainable growth of staking as we continue to see PoS networks rise in popularity and innovations in staking continue to develop.  We hope that these principles serve as a starting point that aligns the industry around best practices, and leads to effective and productive conversations with lawmakers and regulators about what staking is and isn’t. Together with our partners, we will ensure that the rapidly growing, sustainable, multi-billion dollar proof-of-stake ecosystem continues to thrive. 💪 Read more: https://lnkd.in/epZAGjKD