William O'Rorke (ORWL Avocats): "I anticipate gradual action by regulators to limit the risks for the general public".
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Staking is still unclear to regulators. Lawyer Wiliam O'Rorke (ORWL Avocats) looks at the challenges facing the sector.
Is there a legal definition of staking in France or Europe?
No, to date, staking is not a defined legal concept. However, the AMF describes it as the possibility of immobilising digital assets to participate in a proof-of-stake system, without constituting a regulated activity in itself. I think it is important not to equate staking with all associated activities, particularly financial ones.
How is staking currently regulated in France?
Staking is a technical, even industrial, activity that is not regulated. The AMF considers that the services provided by the service provider in connection with staking activities may be regulated, so there is a clear dividing line between pure staking services (mainly technical services) and financial providers of solutions based on staking, starting with turnkey staking solutions or DeFi staking. The latter tend to fall within the scope of regulation.
And in Europe?
MiCA does not explicitly address staking. At the margin, European regulators require crypto asset service providers (CASSPs) to ensure the protection of investors in staking products.
What points will be debated in future regulation?
Financial regulation dedicated to staking does not seem necessary to me. However, I do anticipate gradual action by regulators to limit the risks for the general public. In addition to the work underway to analyse the mechanisms of DeFi and staking, regulators should step up their controls on "financial" staking products as well as on intermediaries giving access to risky staking products (e.g. with a very high return, etc.).
What is the timetable?
Christine Lagarde expresses the desire to regulate staking before the European Parliament, but no date or precise content is given for a possible "MiCA 2". The plan to tax staking profits in the 2024 Finance Act has been scrapped, but future regulation is envisaged.
Is there a risk of staking rewards being requalified as financial instruments?
The risk of requalification weighs more heavily on Liquid Staking Tokens (LSTs), which could be considered financial instruments provided that the liquid staking activity qualifies as a collective investment. This is a major regulatory risk for the sector.
Does Europe have a better approach than the US?
Europe offers regulatory clarity with MiCA, while the US regulator takes a more offensive stance towards the crypto sector. However, rapid developments, such as the approval of bitcoin ETFs in the US, show positive momentum on the US side.
How can companies prepare?
Companies need to clarify the role of their staking activity and assess whether it falls under a financial product or mere technical intermediation. Constant regulatory monitoring is recommended, given the lack of guidance in this area.