Why Staking-As-A-Service Fails All Four Prongs of the Howey Test

No Investment of Money: Users deposit crypto assets for a specific utility service—validation—not a capital contribution. This is a fee-for-service transaction, akin to paying AWS for compute, not buying a share of Amazon.

No Common Enterprise: SaaS providers like Figment or Coinbase Cloud operate isolated node infrastructure. User rewards derive from the protocol's inflation schedule, not the pooled efforts of the service or other users.

No Expectation of Profits: The primary yield is protocol-determined staking rewards, a function of network security, not managerial effort. Any profit expectation stems from the underlying asset's appreciation, a market variable.

No Managerial Efforts: The service provider's role is purely execution and infrastructure maintenance. They lack discretionary control over the core profit-generating asset—the blockchain protocol itself, like Ethereum or Solana.

The Howey Test is misapplied because it assumes a common enterprise, but non-custodial staking services like Lido and Rocket Pool are permissionless protocols, not centralized ventures. The user retains full control of their validator keys, eliminating the managerial effort required by the test's third prong.

The expectation of profit is misattributed. The yield from Proof-of-Stake consensus is a network security subsidy, not a return from the service provider's efforts. The service merely provides the technical means to access this native protocol reward, similar to how Coinbase Wallet provides access to DeFi yields it does not generate.

The investment of money is a red herring. Users stake existing assets (e.g., ETH) to perform a network utility function. This is a capital commitment for operational security, distinct from purchasing a security where capital is pooled for a venture's success.

Evidence: The SEC's own actions against Kraken and Coinbase targeted their custodial staking programs, explicitly distinguishing them from non-custodial protocols. This legal distinction validates the technical argument that key custody defines the enterprise.

Investment of Money is Passive: SaaS users deposit tokens, but the capital is not pooled into a common enterprise. The user retains full ownership of their specific validator keys, unlike a pooled fund like Grayscale's GBTC.

No Common Enterprise Exists: The validator's performance is siloed. A failure at Coinbase or Figment does not affect a user's specific staked ETH, negating the horizontal commonality central to Howey.

Expectation of Profit is Disconnected: Rewards derive from the protocol's consensus mechanism, not the managerial efforts of the service provider. The provider's role is purely operational, akin to AWS hosting a website.

Evidence: The SEC's own case against Ripple established that programmatic sales on secondary exchanges lack a common enterprise. Applying this logic, user-directed staking is a bilateral service contract, not an investment contract.

The 'Common Enterprise' prong fails because the staking pool's success is not inherently tied to the validator's efforts. The protocol's native yield is a function of network consensus rules, not managerial skill. Unlike a traditional enterprise, the pool's performance is dictated by the Ethereum Beacon Chain or Solana's inflationary schedule, not coordinated business activity.

The 'Efforts of Others' prong fails because the delegator's role is not passive. The delegator actively selects the operator based on slashing history, commission rates, and infrastructure reliability. This is a discrete service contract, akin to using AWS for compute, not an investment in a promoter's managerial efforts. The operator's work is execution, not profit-generation.

Counter-intuitive evidence: The most successful operators, like Coinbase or Figment, market their technical reliability, not their profit-maximizing acumen. Their service-level agreements (SLAs) guarantee uptime, not returns. This frames the relationship as infrastructure-as-a-service, not a security. The SEC's own actions against Kraken centered on undisclosed risks, not the fundamental structure of delegation.

The SEC's best case relies on a reductive analogy: a user's deposit into a service like Coinbase Staking is an investment of money in a common enterprise with profits from the efforts of others. This framing deliberately ignores the user's underlying property rights and the service's mechanical, non-discretionary function.

Fails the 'Common Enterprise' prong. The user's staked ETH is a discrete asset, not pooled into a fungible security like a stock. The validator's performance is tied to its own infrastructure, not a shared business venture. This is a critical distinction from pooled investment vehicles.

Fails the 'Profits from Others' Effort' prong. The service provider's role is execution, not management. Providers like Lido or Rocket Pool run software clients; they do not make discretionary business decisions that generate profit. The yield is a protocol-native reward for securing the network, not a dividend from corporate success.

Evidence: The Ethereum protocol's reward schedule is deterministic and public. A user delegating to a Figment or Allnodes validator receives rewards based on a transparent, algorithmic schedule, not the provider's managerial skill. The service is a utility, not an investment.

No Investment of Money: Capital deposited into a non-custodial liquid staking protocol like Lido or Rocket Pool is not an 'investment' in a common enterprise. The user retains ownership and control of the staked asset via a smart contract, a distinction the SEC's case against Coinbase failed to properly litigate.

No Common Enterprise: Staking-as-a-Service providers like Figment or Blockdaemon operate as infrastructure, not a horizontal common enterprise. Profits are not pooled; validator rewards are algorithmically generated by the underlying consensus layer (e.g., Ethereum, Solana), not the service's managerial efforts.

No Expectation of Profits: The primary expectation is for network security provision, not speculative profit. Rewards are payment for a verifiable service, analogous to AWS credits for providing compute. This is a fundamental technological reality the Howey Test ignores.

Evidence: The SEC's own case against Ripple established that programmatic sales on secondary exchanges lack a common enterprise. This precedent directly undermines the argument against non-custodial staking, where user assets never enter a promoter's treasury.