EU Review Threatens Staking Yields as Regulatory Burden Looms

The European Commission's MiCA review has sparked concern among crypto stakeholders as it threatens to impose stricter regulations on staking services. On page 36 of the review, item 66 asks whether Europe's treatment of staking is adequate and what requirements should apply to companies providing staking services.

While there are no proposed staking license or capital requirement, the question suggests that Brussels may consider regulating staking as a service in its own right. This could lead to more specific rules around slashing, withdrawal delays, fees, and who bears the loss when something goes wrong.

Staking has become a complex activity, with various models emerging such as proprietary staking, custodial staking, and liquid staking. The latter, which involves giving up the underlying asset and receiving a token representing the staked position, has grown to an estimated $44 billion in value, with almost 80% of that activity on Ethereum.

The European Commission is now asking whether the distinction between proprietary staking and staking-as-a-service still works. A standalone framework could regulate the layer around the validator, making providers spell out who bears risks such as slashing or withdrawal delays. This could also lead to more formalized withdrawal terms and reward advertising.

For smaller validator businesses, serving European customers directly may become more expensive due to regulatory reporting requirements, legal work, insurance, and customer-service infrastructure. Some may choose to stop dealing with users directly and work behind a large licensed custodian instead.