Representatives from Wisconsin’s banking lobby and the Department of Financial Institutions told a legislative committee examining crypto staking that they oppose deregulating the practice.

DFI Assistant Chief Legal Counsel Mike Gavigan said applying state securities laws to innovative financial products was “nothing new,” and lawmakers should not remove existing protections by exempting crypto staking from securities law. 

“Enacting carve-outs based on the novelty or complexity of a product is not consistent with the goals, history or spirit of laws aimed at protecting the investing public,” Gavigan told the Legislative Council Study Committee on Cryptocurrency. 

At issue is whether to allow Wisconsinites to participate in what’s known as staking-as-a-service, wherein customers use a third-party service to lock or commit their cryptocurrency to a blockchain and potentially collect rewards in a manner akin to earning interest on a savings account or receiving a stock dividend.

No representatives from the cryptocurrency industry testified at yesterday’s hearing. 

DFI considers staking-as-a-service a form of unregistered – and thus unauthorized – securities trading. Wisconsinites can engage in staking themselves, but that process requires considerable financial and computing resources. 

Legislation introduced last session would have exempted staking-as-a-service, or digital asset staking, from state securities law.

Gavigan noted that cryptocurrency is widely used in high-yield investment scams, where victims are persuaded to invest funds into a purported investment portfolio – like a crypto wallet – where the funds are then taken. 

Wisconsin residents lost $43 million to high-yield investment scams in 2024, out of over $92 million lost to all investment scams, according to FBI data shared by DFI officials. Some $46 million of those transactions involved cryptocurrency. 

DFI Securities Attorney Supervisor Robin Jacobs noted that crypto is a popular transaction medium for scammers because it offers anonymity. Transactions also can’t be reversed and take minutes versus the hours or days it can take for a wire transfer or a check to clear. 

Chris Borgerding of the Wisconsin Bankers Association said that if the committee were to find state securities law an impractical framework to regulate crypto staking, it needed to find other ways to implement the fraud protections present in securities law. 

“If securities law is an imperfect fit, the natural next question is what does fit, and we would ask that the answer not be nothing,” Borgerding said. “Whatever else changes, we must preserve the state’s ability to address fraud.” 

Credit union representatives also said they wanted their members to be protected from fraud. 

But Dave Groshek of the Wisconsin Credit Union League also told the committee that the member-owned cooperatives want to offer digital currency services to their members if such practices are authorized.

Committee Chair Sen. Rob Stafsholt, R-New Richmond, said yesterday’s hearing was for informational purposes and that lawmakers would discuss potential legislative action at their next meeting in October.

He stressed he wanted any legislation to come out of the committee to come without “unintended consequences” or pick winners and losers in the crypto market.