Botwin's Morning Wire

The European Commission has opened a public consultation on how staking services should be treated under its Markets in Crypto-Assets (MiCA) framework, asking whether the activity warrants dedicated rules. The consultation, which closes on Sept. 30 at 23:59 CEST, does not propose a new licensing regime or capital requirement, but it signals that regulators are considering a separate staking framework that could affect both users and service providers.

MiCA already governs custodial staking, requiring firms that hold client assets to meet specific safeguards, including separation of client crypto from company holdings and procedures for returning assets in insolvency. The Commission now wants to know whether staking, which began as a technical network function, has grown complex enough to merit its own regulatory category.

Staking originally involved participants locking assets to run validator software and earn rewards for securing proof‑of‑stake blockchains. When exchanges, custodians and other platforms began offering staking as a service, the activity started to resemble traditional financial services and attracted regulatory attention. Under current guidance, a company that takes custody of a customer’s crypto and stakes it on the customer’s behalf falls under MiCA’s custody rules, even if the customer retains control of the withdrawal key.

The distinction matters because many staking models now exist. Direct staking by an individual who runs a validator with their own 32 ETH involves no intermediary, while liquid‑staking platforms such as Lido aggregate large amounts of staked assets and issue derivative tokens that can be traded or used as collateral. A joint report by the European Banking Authority and the European Securities and Markets Authority estimated the liquid‑staking market at $44 billion in October 2024, with Lido accounting for roughly $25 billion.

Regulators are concerned about several risks associated with these models. Withdrawal periods can be lengthy, validators may be slashed, and reward calculations are often opaque. Providers may also retain a portion of rewards, and liquid‑staking tokens can trade at a premium or discount to the underlying asset, creating additional leverage when used as collateral. A dedicated staking regime could require providers to disclose who bears these risks and how they are managed.

If Europe adopts a separate staking framework, larger custodians and exchanges would likely absorb the added compliance costs, while smaller validator operators might find it uneconomical to serve European customers directly. This could concentrate staking services in the hands of a few well‑resourced firms, potentially influencing how validator sets are chosen and how delegated stake is distributed across networks.

The shift would also affect end‑users. Retail participants who prefer a simple, one‑click staking experience might benefit from clearer rules on withdrawal delays, fee structures and loss allocation. Institutional investors, who have hesitated to engage with staking because of legal‑title and liability uncertainties, could find the regulatory environment more predictable, though higher compliance costs could translate into lower net yields.

Europe is not starting from a regulatory vacuum. Existing MiCA provisions already impose obligations on custodians, and the European Securities and Markets Authority has clarified that firms cannot treat staked assets as their own property. The current consultation merely asks whether the existing distinction between protocol‑level staking and staking‑as‑a‑service remains appropriate.

If Brussels decides that staking deserves its own rules, the move would mirror the regulatory evolution seen in other financial sectors. New products often begin with minimal oversight, expand as adoption grows, and eventually attract comprehensive regulation that reshapes market structure. Crypto analysts note that, similar to the post‑2008 reforms that pushed derivatives clearing into central counterparties, staking could transition from a decentralized activity to a regulated service dominated by large, compliant providers.

Users who wish to avoid regulated intermediaries could still opt for self‑custody, interacting directly with validators or decentralized protocols. However, the growing scrutiny may push more of the staking ecosystem toward regulated custodians, potentially altering the balance between user freedom and consumer protection. The ultimate impact will depend on how the consultation’s findings are translated into concrete regulatory proposals and how those proposals are implemented across the diverse technical architectures of proof‑of‑stake blockchains.

The Securities and Exchange Commission announced on September 17 that it would grant a five-year conditional exemption allowing tokenized U.S. stocks to trade through permissioned automated market makers, a framework designed to test regulated onchain equity markets while preserving investor protections. Under the Innovation Exemption, qualifying venues may operate secondary trading pools for tokenized National Market System stocks provided the tokens convey identical shareholder rights to their traditional counterparts, including dividend entitlement, voting rights and liquidation claims. Primary offerings remain barred from the exemption, and any tokenized stock must still satisfy standard Securities Act registration requirements or qualify under another exemption. The SEC imposed strict caps on participation, limiting Tier One tokenized stocks to 75 symbols and 0.25% of each stock’s prior-month average daily volume, while Tier Two expands the ceiling to 250 symbols and 2.5% volume. Breaching these thresholds triggers a three-month suspension of trading for the affected token. Venues must also publish a public notice at least 30 days before launch and notify the Commission within one business day, with issuers granted a 30-day window to object before trading begins. Smart contracts powering these pools must be auditable and operate on public, permissionless ledgers, though access to the venue itself remains permissioned. Trading must halt immediately if the underlying stock is suspended on its primary exchange. Goldman Sachs and Citizens analysts identified Coinbase, Robinhood and Circle as potential beneficiaries, noting Coinbase’s existing infrastructure for tokenization, custody and stablecoin integration could support compliant onchain equity markets. Coinbase’s international stock tokens are fully backed one-to-one by regulated, bankruptcy-remote shares and already distribute dividends via onchain multipliers, though U.S. availability awaits compliance adjustments. Its Base network has processed over $730 million in decentralized exchange volume in September, with Morpho enabling lending against these tokens using USDC as collateral. Robinhood’s current overseas stock tokens, structured as debt securities without legal claim on underlying companies, do not meet the SEC’s shareholder-rights threshold and would require redesign before U.S. eligibility. The company has signaled plans to add redemption and voting features, but its existing products conflict with the exemption’s requirement for equivalent shareholder rights. Circle could see increased demand for USDC as a settlement asset within qualifying AMM pairs, though the framework does not mandate any specific stablecoin. Traditional market infrastructure providers, including DTCC and major banks, are separately advancing tokenization through DTC-custodied assets, with a limited launch planned for October 2026 following pilot transactions. The SEC frames the exemption as a temporary bridge to inform future rulemaking, emphasizing that synthetic exposure products remain excluded and that price dislocations between AMM pools and conventional markets will be monitored closely.

In June, Sony informed Hideo Kojima that it would cease funding for Physint, the studio's long‑awaited espionage project, during a Zoom call that left him stunned. Kojima, accompanied by Kojima Productions president Shinji Hirano and head of talent development Aki Saito, said he could not process the decision and immediately feared for the studio's survival. With roughly 200 employees and ongoing loans from a bank that had previously supported the team after Death Stranding, Kojima worried about layoffs, unfinished actor scans and the future of the project.

Kojima initially kept the news from his staff, uncertain whether developers would stay or leave. He emphasized that the studio operates on a project‑by‑project contract basis, so losing Physint threatened cash flow and could have forced collapse. After the meeting, he began drafting additional concepts for Physint in private, hoping to find a new partner before informing the team.

Xbox emerged as a potential savior. Kojima noted that Microsoft's leadership, including new head Asha Sharma, responded enthusiastically to a pitch that framed Physint not merely as a game but as a broader intellectual property spanning film, anime, music and merchandise. The pitch highlighted the need for technical, marketing and play‑testing support that Xbox could provide, a contrast to the more transactional funding model Kojima described with Sony.

Within days, Kojima informed the Physint team of the possible partnership and began negotiations with Xbox. The studio managed to retain most staff, moving some developers to the OD project while keeping the core Physint group intact. Production continued on a reduced scale, with Kojima still conducting concept work, casting and motion‑capture experiments, though the engine choice remained undecided.

Kojima Productions issued a statement after the interview, asserting that the studio remains profitable, that Physint development proceeds under Xbox, and that its relationship with PlayStation stays strong. The studio urged readers to treat external speculation with skepticism.

The interview was conducted before Bloomberg reported that Sony had abandoned Physint due to missed deadlines, budget concerns and perceived underperformance of Death Stranding. Kojima declined to confirm those reasons, stating only that Sony provided no explanation and that he had no desire to damage the long‑standing relationship with the company.

Now focused on finalizing Physint, Kojima plans to expand the franchise into film and other media, aiming to shorten the typical game‑to‑screen timeline. He expressed confidence that the collaboration with Xbox aligns with his vision of a cross‑platform IP ecosystem, while emphasizing that the studio's immediate priority is completing the game and safeguarding its workforce.