The U.S. Securities and Exchange Commission’s Division of Corporation Finance released a staff FAQ on September 25 that frames popular liquid-staking tokens as receipts rather than securities, drawing attention to the practical exit challenges for holders of Coinbase’s cbETH and Lido’s stETH.
How the SEC describes liquid-staking receipts
The staff memo defines a receipt by the rights it confers: it proves an asset was deposited and that the depositor retains ownership. Under this view, the entity that issues the receipt cannot transfer, pledge, or otherwise use the underlying asset, nor can it expose the deposit to third-party claims. The guidance distinguishes two possible regulatory classifications. If the receipt merely evidences ownership of a digital commodity, it may be treated as a “digital tool.” Conversely, a token issued by a protocol-based liquid-staking service could itself be a “digital commodity” when its value is tied to market supply and demand. The language is deliberately non-committal; the memo does not assign a definitive label to any specific token.
Coinbase’s custodial route for cbETH
Coinbase’s user agreement states that cbETH represents ETH staked through the exchange, including accrued rewards and any applicable fees or slashing penalties. The staked ETH and its rewards are held by Coinbase on behalf of token holders, and ownership does not transfer to the exchange. When a holder sells or transfers cbETH, the underlying ownership interest and the right to redeem the token pass to the recipient.
Redemption can occur in two ways. First, a holder may sell cbETH on the open market, but the price may diverge from the value of the underlying staked ETH, especially during periods of thin liquidity. Second, a holder can unwrap cbETH through Coinbase, which requires a Coinbase account in good standing, compliance with staking eligibility, and may be subject to geographic restrictions and processing delays. Unwrapping returns the staked ETH (minus fees and any slashing), which then must undergo Ethereum’s own unstaking period before it becomes spendable. Thus, a transferable token does not guarantee immediate access to liquid ETH.
Lido’s protocol-driven path for stETH
Lido operates via a smart contract that accepts ETH deposits and issues stETH in return. To retrieve ETH, a holder submits a withdrawal request that enters a queue; the length of the queue depends on protocol capacity and validator exit dynamics. Alternatively, the holder can sell stETH on secondary markets.
The protocol’s withdrawal mechanism can be slowed by queue congestion or validator issues, and the amount of ETH ultimately received may be affected by slashing events. Selling on the market provides a faster exit only if a buyer is willing to trade at an acceptable price; otherwise, spreads and discounts to ETH can widen. Lido’s disclosures note that stETH and its wrapped variant wstETH lack any formal regulatory approval at the protocol level.
Practical implications for investors
Both cbETH and stETH illustrate that “liquid” refers to the token’s ability to be transferred, not to a guaranteed, immediate conversion into unstaked ETH at a fixed rate. Holders must consider who retains legal ownership of the deposited ETH, the specific redemption process, and the potential for price divergence, liquidity constraints, or delays. The SEC’s FAQ does not confer any regulatory status on these tokens, nor does it create new obligations for issuers; it merely frames the analytical lens for future assessments.
Why it matters
Clarifying that liquid-staking tokens are receipts rather than securities shapes how regulators, exchanges, and investors evaluate risk. The distinction emphasizes that token holders remain exposed to custody nuances, withdrawal queues, and market liquidity, all of which can affect the realized value of their positions. As institutional participation in Ethereum staking grows, understanding these exit dynamics becomes crucial for compliance and risk-management strategies.
