Legal Classification of Liquid Staking Tokens in the EU
Tokens like stETH are held by hundreds of thousands of users across Europe, yet no one can say with certainty which regulatory regime applies to them. Are they crypto-assets under MiCA? Financial instruments under MiFID II? Units in an alternative investment fund? The answer turns out to depend not on what these tokens do economically, but on how they are built. This distinction has significant consequences for everyone in the market.
The MiCA Crypto Alliance has published a new interim report examining how liquid staking tokens (LSTs) should be treated under EU law. LSTs represent tokenised positions in proof-of-stake networks, allowing users to stake assets while retaining liquidity through a transferable token that reflects the underlying staked position and accruing rewards. The legal challenge is that these structures were not contemplated when MiCA, MiFID II, or AIFMD were drafted, placing them at the intersection of multiple EU regulatory frameworks.
Regulatory context and classification challenge
The report addresses a practical and increasingly important question for market participants, exchanges, custodians, and other service providers: when should an LST be treated as a crypto-asset under MiCA, and when might it instead fall within financial instrument or fund regulation?
The analysis makes clear that this cannot be resolved by economic resemblance alone. A token may appear similar to a financial product in economic terms, but that does not determine its legal treatment. What matters is how the token is designed, how control is structured, whether holders have enforceable rights against an identifiable issuer or counterparty, and whether any party is exercising discretionary investment management.
A structured approach to classification
Rather than classifying tokens by label, the report applies a feature-based taxonomy that examines three dimensions together: how centralised control is across critical resources such as minting, redemption, and governance; how the token's mechanics are designed across its lifecycle; and what economic function it serves. This final dimension is treated as secondary unless it is backed by enforceable rights and attributable control structures. This framework is then applied through a sequential classification process that assesses stable-value intent, control surfaces, and the potential relevance of MiFID II, AIFMD, and MiCA.
Rethinking the relationship between MiCA and MiFID II
One of the more significant conceptual contributions of the report is its treatment of how MiCA and MiFID II relate to each other. It is commonly assumed in practice that MiFID II takes precedence and that MiCA fills the gaps, meaning regulators first assess whether something is a financial instrument and only turn to MiCA if it is not. The report challenges this framing. MiCA and MiFID II are better understood as parallel regimes with distinct subject matter, each governing the assets that fall within its own definitions, rather than a primary framework and a residual one. Article 2(4) of MiCA ensures mutual exclusivity between the two, but it does not establish a hierarchy. This matters because the sequencing affects how classification analysis is structured and which framework’s logic shapes the outcome.
Main findings
The report reaches several core conclusions.
First, standard liquid staking tokens do not naturally fit MiCA's stable-asset categories. Their value is designed to move with the underlying asset, rather than maintain stable value through a stabilisation mechanism. This makes EMT and ART classification generally implausible for typical LST structures.
Second, decentralised LSTs will often fall outside MiFID II and AIFMD. In typical protocol-native designs, holders do not have legally enforceable claims against an identifiable issuer, and the structure does not usually involve capital being managed according to a defined investment policy by a discretionary manager. On that basis, decentralised LSTs generally fail both the MiFID II and AIFMD tests.
Third, the baseline outcome for decentralised LSTs is MiCA's "other crypto-assets" category. Where stable-value intent is absent and both financial instrument tests are negative, regulatory obligations shift primarily to the service layer, including exchanges, custodians, crypto-asset service providers, and staking providers, rather than attaching at the protocol level.
Why design matters for classification
A central message of the report is that there is no single legal answer for LSTs as a category. Classification is token-by-token and depends on architecture. This is particularly important because economically similar exposures can lead to different legal outcomes. A decentralised protocol-native LST may be treated as an "other crypto-asset" under MiCA, while a custodial wrapper offering similar economic exposure may attract materially higher MiFID II or AIFMD scrutiny. The determinative questions are who controls minting, who controls redemption, where yield comes from, and how governance is structured.
The report illustrates this through specific examples. Protocol-native structures such as stETH and rETH are presented as likely MiCA OTH cases, while custodial wrappers such as cbETH are identified as higher-sensitivity cases requiring enhanced MiFID II and AIFMD analysis.
Transatlantic convergence
The report also notes a convergence with developments in the United States. In March 2026, the SEC and CFTC issued a joint interpretation on crypto-asset classification that independently arrived at a design-based framework organised around the characteristics, uses, and functions of each asset. The US analysis maps closely onto the EU taxonomy. The Howey test’s focus on "essential managerial efforts" corresponds to AIFMD’s "defined investment policy" requirement, and the distinction between protocol-based providers performing administrative functions and custodial arrangements involving discretionary control mirrors the EU’s decentralised and custodial divide. Both legal systems are grappling with the same structural problem. Financial regulation built around identifiable issuers and enforceable obligations does not map cleanly onto assets whose defining feature is the absence of both.
Implications for market structure and supervision
The report is candid about a broader implication of this approach. Because classification follows structure rather than economic substance alone, firms may have incentives to design products in ways that avoid issuer-centric regimes. The taxonomy does not resolve that tension, but it makes it transparent and auditable, which the report argues is a necessary foundation for any coherent supervisory response.
Open for feedback
This report is published as an interim version and is open for industry feedback as part of an ongoing working group bringing together market participants to refine the analysis and align interpretations. Participation in this process is open to members of the MiCA Crypto Alliance. Organisations that would like to contribute to this work are invited to join the Alliance.
