lex_node here, responding with a LeXpunK_Army perspective:
We definitely think this proposal is much needed, and would represent money well spent. The legal complexities with liquid staking are enormous and the regulatory and other legal challenges will be numerous in the years ahead
If this wasn’t already on your radar, Chorus One published a “Liquid Staking Report” with a pretty comprehensive legal report in the appendix. However, this is when DeFi was relatively new, and thus the report consists mainly of legal “issue-spotting” rather than concrete actionable conclusions.
One of LeXpunK’s main focuses is in being action-oriented, pragmatic and utilitarian. Legal scholarship, theory and broad “issue-spotting” (high level identification of potential legal issues) are nice, but we believe builders need tools that they can act with now. Issue-spotting etc. are easy and lucrative tasks for law firms, but do not move the needle. Similarly, broad principles-based ‘suggestions for regulatory reform’ are already in abundant supply but tend to go nowhere while merely generating favorable law firm publicity.
Accordingly, we suggest the proposal be slightly recalibrated to focus on getting pointed, actionable work product from Perkins Coie (certainly a wonderful and competent firm). In order to achieve this, we also suggest that the scope of the proposal be narrowed (while keeping the same budget).
Here are a few ideas for a narrowed scope:
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In general, tax issues around liquid staking have not received as much detailed attention and could justify an entire report unto themselves. We suggest focusing in-depth on a tax issue that was “issue-spotted” in the Chorus report, such as:
- optimal staking protocol design for U.S. tax purposes (for example, is non-liquid staking definitely NOT a sale of the underlying assets; under what conditions does it become a sale and what protocol features can be added to make clear it is not a sale?)
- revenue/income recognition on liquid staking arrangements - what is the timing on this recognition and how is it affected by different protocol design choices?
- whether liquid staking tokens represent “bearer instruments” which are subject to punitive excise tax penalties - Note: Gensler in a talk yesterday repeatedly emphasized that he views crypto as “bearer value” and that “bearer instruments” are highly disfavored under regulation?
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Which liquid staking tokens are “swaps” and which are not “swaps”, and what protocol design features make them less likely to be “swaps”?
Happy to be helpful where we can!