UK rule change boosts crypto staking following series of setbacks

British regulators just changed the way they categorise crypto staking.

On Friday, the act of locking up tokens to earn rewards, will no longer be deemed a collective investment scheme in the UK thanks to a regulatory amendment by the UK Treasury.

The change exempts staking from the hefty regulatory burdens usually required of such schemes. It also brings clarity for crypto firms, exchanges, and DeFi protocols that offer staking services.

“It shows that the UK is investing resources in understanding a complex industry that is innovating in both technology and also financial products,” Tim Lowe, a strategic advisor at Bitwise Onchain Solutions, a firm that provides institutional staking services, told DL News.

Investor confidence

On its own, the change will not have a major impact on investors, Lowe said. It will, however, help build investor confidence in digital assets as a whole.

It comes after a slew of setbacks have sapped confidence in the UK crypto industry even as the US under President Trump is ascendant. Last week, news broke that Andreessen Horowitz, the Silicon Valley venture capital firm heavily invested in crypto, is closing its London office.

In 2022, the Conservative government laid out plans to turn the UK into a global crypto hub. Proposed measures included regulating stablecoins and legislating for a “financial market infrastructure sandbox” to help firms innovate.

But these plans never materialised. The Labour Party, which took over after a landslide election victory last July, did not include digital assets in its manifesto, or policy plan.

In August, the UK’s financial regulator revealed it had received just 34 applications to register crypto firms in the past 12 months, with only four being successful.

In November, Labour announced plans to expedite a crypto regulatory framework. But it may be too little too late.

“We’re behind the rest of Europe, and then other jurisdictions in Asia and the Middle East,” said Ian Taylor, then board adviser to CryptoUK, lamenting the UK’s standing.

‘Common sense regulation’

Unclear crypto regulation has previously impacted firms operating in the UK.

In 2023, PayPal temporarily paused its crypto purchasing service while it updated its system to comply with new UK regulations, Reuters reported. Despite indicating that the service would resume for UK customers in early 2024, the PayPal website says it’s still paused.

Then last year, UK fintech Revolut scrapped its crypto staking service, citing the “changing regulatory landscape” in the country.

The recent exemption for staking could signal a long-awaited turning point for UK crypto regulation.

“Our hope is that regulators provide the resources necessary to ensure that common sense regulation of the industry is put in place,” Lowe said. “This will both help protect consumers but also ensure that the UK moves to the forefront of digital asset innovation.”

The government said it aims to engage firms on draft legal provisions for crypto regulations, including stablecoins, in early 2025.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.