Proof of Stake Alliance updates recommendations for staking providers

The POSA updated its staking principles to say that providers should communicate clearly and should not control the amount of liquidity a user must provide.

The Proof of Stake Alliance (POSA), a non-profit organization that represents firms in the crypto staking industry, published an updated version of its “staking principles” on Nov. 9. The new principles are supported by Ava Labs, Alluvial, Coinbase, Lido Protocol, Paradigm, and ten other staking industry firms.

Previous version of the POSA staking principles. Source: POSA.

POSA represents 15 different firms in the staking industry, including Alluvial, Ava Labs, Blockdaemon, Coinbase, Credibly Neutral, Figment, Infstones, Kiln, Lido Protocol, Luganodes, Methodic, Obol, Polychain, Paradigm, and Staking Rewards.

The staking principles were first published in 2020. According to the blog post that announced them, the POSA staking principles are meant to be “a set of industry-driven solutions” that providers can implement to address the concerns of regulators and to encourage responsible practices in the industry.

The old version of the staking principles says staking providers should not give investment advice, guarantee the amount of staking rewards that can be obtained, or imply that they have control over a protocol in their marketing materials. Instead, they should advertise that their products provide access to a protocol and allow users to enhance security. In addition, the principles state that staking providers should use non-financial terminology such as “staking reward” in their marketing materials instead of financial terms like “interest.”

The Nov. 9 announcement says three new principles will be added. First, staking providers will be encouraged to provide “Clear communication […] To ensure users have all the information necessary to make informed decisions.” Second, users should be able to decide how much of their assets they want to stake, as this will promote “user ownership of staked assets." Third, staking providers should have “explicitly delineated responsibilities” and “should not manage or control liquidity for users.”

The crypto staking industry has been criticized by some regulators, who claim it's a cover for issuing unregistered securities. Kraken’s staking service was shut down by the U.S. Securities and Exchange Commission on Feb. 9; the exchange was ordered to pay $30 million in damages for allegedly violating securities laws. However, other staking providers have claimed that their staking services are not securities. For example, POSA member Coinbase argued that its service is “fundamentally different” from Kraken’s and does not violate securities laws.

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