¶ 1201
Overview
Scope of the chapter. This chapter examines what happens, in private law and in regulation, when digital assets held by one person are put to work by another. The principal activities are staking, in which tokens are committed to the consensus mechanism of a proof-of-stake network in exchange for protocol rewards; lending, in which tokens are transferred to a borrower who promises to return the same quantity of the same asset; rehypothecation, in which a person holding assets as custodian, broker or secured party pledges or lends them onward; and the retail yield programs that combined these activities and failed in 2022. The chapter also treats protocol-based lending and liquidation, the federal income tax treatment of staking rewards, and the limits that fiduciary law places on a trustee who wishes to stake or lend trust assets.
The common question. Each activity raises the same threshold question: after the activity begins, who owns the asset? A holder who stakes from a wallet it controls continues to own the staked tokens, although the protocol may prevent their transfer for a period. A customer who lends tokens to a platform under a title-transfer clause ordinarily owns nothing but a contract claim against the platform. A customer whose custodian rehypothecates without authority may own a property interest that the custodian has placed beyond reach. The answer determines whether the customer is a secured creditor, an unsecured creditor or the owner of property that is excluded from the platform's bankruptcy estate. It also determines who bears slashing losses, who is entitled to rewards and forks, and whether a regulator will treat the arrangement as an offer of securities.
Why the question is decided by contract. No statute defines the property consequences of staking or lending a token. Article 12 of the Uniform Commercial Code supplies rules on control and on the rights of a qualifying purchaser, discussed in ch. 6, and Article 8 supplies a framework for assets credited to a securities account, discussed in ch. 8. Outside those frameworks the answer lies in the customer agreement, the protocol's own rules and the general law of bailment, trust, agency and debt examined in ch. 10. The bankruptcy decisions discussed in ¶ 1250 turned almost entirely on the words of the platform's terms of use. A lawyer who reviews a staking or yield arrangement for a client should therefore begin with the contract and ask what it says about title, use, segregation and return.
The regulatory overlay. Three regulatory regimes shape the activities. The federal securities laws apply where the arrangement is an investment contract; the Securities and Exchange Commission brought enforcement actions against several staking and lending programs between 2022 and 2023, and its staff issued statements in 2025 describing protocol staking and liquid staking arrangements that, in the staff's view, involve no offer or sale of securities. Custody regulation limits a custodian's use of customer assets: the New York Department of Financial Services' 2023 guidance, Wyoming's custodial-services statute and Article 70 of the European Union's Markets in Crypto-Assets Regulation each restrict use for the custodian's own account. Broker-dealer rules on possession and control of customer securities, and on borrowing them, supply a developed model for tokenized securities and an analogy for other assets. Paragraph 1230 treats the securities questions and ¶ 1260 the custody and broker rules; ch. 35 treats securities regulation generally.
The record of failure. The law in this area was made in bankruptcy. In 2022 several platforms that had offered retail customers a yield on deposited tokens suspended withdrawals and filed under chapter 11. In each case the courts asked whether the deposited tokens were property of the estate. In Celsius, the bankruptcy court held that the terms of use unambiguously transferred title to tokens deposited in the yield product to the platform. The same court later ruled that assets held in the platform's segregated custody wallets belonged to the custody customers, and the BlockFi bankruptcy court is reported to have drawn the same line between interest-bearing accounts and wallet accounts. Customers who lent through an intermediary to an institutional borrower, as in the Gemini Earn program, recovered through security arrangements negotiated on their behalf. Paragraph 1250 examines these cases. Their lesson is that a customer's position in insolvency is fixed by the documents on the day of deposit, and that a yield product is, in law, a loan.
Organization. Paragraphs 1210 and 1220 describe the forms of staking and the property consequences of each. Paragraph 1230 examines the securities-law treatment of staking, including the enforcement record and the 2025 staff statements, and the European position under MiCA. Paragraphs 1240 and 1250 treat lending: the distinction between a title-transfer loan and a secured loan, and the retail yield programs. Paragraph 1260 examines rehypothecation by custodians and brokers. Paragraph 1270 describes lending through smart-contract protocols and the allocation of loss when a liquidation fails. Paragraph 1280 treats the income tax treatment of staking rewards, the 2025 safe harbor for investment trusts that stake, and the fiduciary limits on a trustee's power to stake or lend. Paragraph 1290 collects drafting points, model provisions and a checklist.
Cross-references. The technology of proof-of-stake consensus is described in ch. 2, and the forms of custody in ch. 9. Security interests in digital assets, including control agreements and the enforcement of collateral, are treated in ch. 7. The custodial relationship as bailment, trust or debt is examined in ch. 10, and the qualified-custodian rules in ch. 11. Fiduciary duties over digital assets are treated in chs. 14 to 16, insolvency in chs. 27 to 29, and taxation in ch. 30.