The infrastructure project Jito announced on Tuesday that its primary token, JitoSOL, is not classified as a security. Given that a crypto initiative holds a $2.4 billion asset and would assert such a position isn’t surprising. What stands out more is the overt manner in which Jito shared this stance.
In a newly released “Securities Classification Report,” the Jito Foundation elaborates on why JitoSOL does not, cannot, and will not be subject to SEC regulation, spanning 24 footnoted pages. This analysis resembles the detailed insights typically prepared by crypto lawyers for private clients, but rarely for public sight.
The recent acceptance of cryptocurrency by mainstream figures has empowered Jito to voice opinions they previously kept private, according to sources within Jito Labs, the team behind this vital Solana infrastructure. The foundation, based in the Cayman Islands, produced and presented its report to inspire other players in the industry to follow suit.
“Currently, there’s a great deal of optimism among creators and an eagerness to collaborate with regulators to establish better frameworks for developers,” remarked Jito Labs CEO Lucas Bruder.
During the administrations of former President Joe Biden and previous SEC Chairs Jay Clayton and Gary Gensler, the agency took action against numerous leading crypto enterprises for various alleged infractions, including registration issues. Recently, though, it seems to be easing its approach, withdrawing notable lawsuits that called into question the regulatory distinctions relevant to several debated aspects of the crypto sphere – including liquid staking tokens.
Liquid Staking Tokens (LSTs) act as depository receipts enabling users to tap into the value of assets (generally ETH or SOL) being held in staking contracts, which contribute to a blockchain network’s security while yielding staking rewards.
This specific sector has witnessed remarkable growth within crypto’s staking platforms. Ethereum currently holds around $26 billion in LSTs, with Solana following at a more modest $6 billion. Jito’s offering is the largest LST on Solana, surpassing its nearest competitor by more than twofold.
Importantly, the SEC has yet to accuse Jito of any violations of U.S. law, and sources from Jito Labs stated that the commission has not engaged with the project’s sponsors over the years. However, a shift in regulatory approach under the current administration has allowed Jito to adopt a more assertive stance: founder Lucas Bruder met with a crypto task force earlier this year to discuss staking.
The new classification report evaluates JitoSOL against the established Howey Test, a legal benchmark for assessing whether an asset qualifies as an investment contract, thus categorizing it as a security. Among its central arguments: the program issuing JitoSOL functions autonomously on a blockchain.
“The key takeaway is that this represents pure technology,” stated Rebecca Rettig, legal counsel for Jito Labs.
Moreover, the report extends beyond rigid securities law to reference the pro-crypto atmosphere emanating from the White House. It even cites the executive order aimed at positioning the U.S. as the global hub for cryptocurrency.
“If federal securities law and regulations were applied to liquid staking solutions as they currently exist, it would effectively eliminate their availability, undermining the objectives of the Executive Order,” the report concluded.