Industry Group Led by Polychain, Coinbase Seeks to Get Ahead on Staking Regulations

The Proof of Stake Alliance (POSA), an industry advocacy group, is publishing a series of recommended standards for companies participating in a proof-of-stake consensus protocol in an effort to reduce regulatory clampdowns on different networks.

The group met with members of the U.S. Securities and Exchange Commission (SEC) earlier this year to discuss their proposals and discuss staking more broadly, as well as submit a white paper detailing the industry recommendations. The alliance includes Bison Trails, Coinbase, Polychain, Tezos and the Cardano Foundation, among others.

“We’re coming out with some industry-driven solutions around staking as a service which we believe will really help push the ecosystem forward and ensure that staking as a service and staking can grow in the U.S. without being subject to some regulatory landmines and hurdle,” said Evan Weiss, the group’s founder.

Weiss, who is also chief of staff at Bison Trails, said the idea is entities that stake networks can be seen as service or infrastructure providers, rather than financial product providers.

The recommendations shared with the SEC are essentially:

• Don’t provide investment advice to market participants
• Don’t call staking rewards “a profit opportunity”
• Focus advertising on network participation and security
• Don’t indicate the service provider has control over inflation rate
• Don’t provide guarantees on staking rewards

“I do think [with] these networks, we are very clearly seeing that the technology underlying them is very powerful and I see it having an impact, maybe not in the next few months but in the next year or two,” Weiss said.

The group used Tezos and Cosmos as two examples of proof-of-stake networks that are already live, he said, with questions focusing on how they work.

See also: Coinbase Custody to Support Polkadot Staking With up to 20% Returns

Polkadot and NuCypher are another set of networks that haven’t quite launched yet, but which the group hopes to use as examples.

“As they start launching we’re hoping to continue engaging with the SEC,” Weiss said. “They want to be smart on this which makes total sense and in my view they’ve been super reasonable about this.

Network, not tokens

Weiss said the group wanted to focus strictly on the operation of a proof-of-stake network, and not necessarily on the tokens that might be built on them. 

“I think we really hope it looks more at looking at the providers as security and infrastructure providers, not financial providers,” he said.

The group wants to remain small and focused on a single issue rather than field questions about whether a given token is a security, he said, adding the alliance would be willing to collaborate with some of the other trade associations in the space as needed to address these types of questions.

“There’s been a lot of amazing work done by the [Chamber of Digital Commerce], the Blockchain Association so for us being a smaller [group] … I don’t’ think we’ll be taking the lead here,” he said.

The question of how proof-of-stake networks fit into regulatory regimes is still a broad one. Right now the group is focused on advocacy efforts within the U.S., but Weiss hopes any solutions that fit the U.S. framework will be applicable outside the country as well.

“We’ve kind of taken this approach of being very detailed and so we’ve had a few times that we’ve been really focused on,” he said. “Our thinking is if we can get this right in the U.S. it can work [elsewhere] through ripple effects.”

See also: Kyber to Offer Delegated Token Staking After Coming Network Upgrade

What the group needs now is buy-in from industry stakeholders and for conversations with the regulators to continue, he said. 

He also wants to avoid a situation where entities are promoting tokens or a potential repeat of the 2017 initial coin offering market, which in his view “was not a great allocation of resources.”

“A lot of people were hurt by it, so it’s finding a line between people who are really true technologists and making sure the people in the new economy, new interactions have a way to do that,” he said.