U.S. Securities and Exchange Commission staff says certain proof-of-work protocol mining activities do not involve securities offerings

The Division of Corporation Finance of the U.S. Securities and Exchange Commission published a staff statement setting out its views on when proof-of-work “Protocol Mining” of certain “Covered Crypto Assets” on public, permissionless networks falls outside the federal securities laws’ offer-and-sale framework. Under the circumstances described, the Division views these mining activities as not involving the offer and sale of securities, meaning participants would not need to register transactions under the Securities Act of 1933 or rely on an exemption for those activities. The statement focuses on crypto assets that are intrinsically linked to a network’s programmatic functioning and used or earned through participation in the consensus mechanism or maintenance of the network’s technological operation and security, and it excludes assets with intrinsic economic properties or rights such as passive yield or rights to future income. It addresses both self (solo) mining and mining pool participation, including pool operators’ roles in earning and distributing protocol rewards, and applies the Howey “investment contract” analysis to conclude that miners’ rewards are payments for validation services based on their own computational contribution rather than profits derived from the managerial or entrepreneurial efforts of others; pool operator activities are characterized as primarily administrative or ministerial. The Division also notes that determinations remain fact-specific and that variations in compensation structures, participation, or pool operator conduct could lead to a different conclusion.