Yesterday, the White House Working Group on Digital Asset Markets released its long-awaited report pursuant to Executive Order 14178. If you haven’t had a chance to dig into the 160-page report yet, here’s the headline: this is the most detailed articulation of the federal government’s strategic vision for crypto markets under the current administration, and it signals a meaningful shift toward regulatory clarity, institutional adoption, and pragmatic support for blockchain innovation.

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At its core, the report aims to bridge the gap between innovation and legality. By supporting DeFi experimentation under supervised conditions (e.g., regulatory sandboxes) and clarifying how institutions must handle custody and customer assets, the Working Group seeks to lower entry barriers while managing real risks. It encourages responsible growth, fosters competition, and, importantly, offers legal certainty that financial institutions have long said they need to build in this space.

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But among the many regulatory and legislative recommendations in the report, one stands out for its potential to unlock institutional participation in a foundational layer of blockchain infrastructure: staking.

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Staking Rewards and the Case for Tax Reform

Buried in the tax section of the report is a notable directive: Treasury and the IRS are urged to revisit the existing tax treatment of staking rewards, which has been a long-standing pain point for both individual participants and institutional service providers.

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For years, staking income has been treated under a framework originally laid out in IRS Notice 2014-21 and reinforced in Revenue Ruling 2023-14: newly received staking rewards are taxed as ordinary income at the time they’re received, based on fair market value, even if the user doesn’t sell or realize any actual gain. That means taxpayers owe taxes on so-called “phantom income” (i.e., rewards they haven’t liquidated and may never actually profit from).

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This approach has drawn widespread criticism. It’s burdensome, inconsistent with the treatment of other property-based income, and creates friction for institutional adoption. Infrastructure providers and validators must manage complex tracking and reporting requirements across thousands of reward transactions, often denominated in volatile assets. For institutions or enterprise staking clients, this adds operational risk and accounting headaches that far outweigh the actual economic upside, which has made staking less attractive despite its core role in blockchain networks.

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The report’s recommendation that the Treasury and the IRS review and potentially revise this approach is a welcome sign. It suggests openness to alternative models, such as treating staking rewards like unsold property, where taxation is deferred until disposition. That framework would align with how crops, minerals, and even mined crypto (in some interpretations) are taxed. It would also mirror tax policy proposals advanced by groups like Coin Center and the Proof of Stake Alliance.

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What It Could Mean for Staking Providers and Institutions

If the IRS adopts a more favorable tax treatment of staking rewards, the impact could be substantial:

• Reduced compliance burden: Service providers wouldn’t need to issue income statements for every staking reward at the time of receipt. That’s a huge operational win, especially for high-frequency protocols.
• More institutional participation: Asset managers, funds, and enterprises wary of phantom income or surprise tax bills would have greater confidence to stake client assets or participate directly.
• Stronger validator ecosystems: Easier tax treatment could encourage more professional operators and infrastructure firms to enter or expand their validator footprint, improving network security and decentralization.
• Increased U.S. competitiveness: A practical, modernized tax regime would reduce the incentive for staking providers to domicile offshore.
  

This isn’t just a technical tweak. It’s a policy signal that the federal government is beginning to understand the nuances of crypto infrastructure and that it’s willing to recognize and recalibrate when existing rules don’t fit.

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A Step Toward Legal and Economic Maturity

Taken as a whole, the Working Group’s report represents a deliberate step toward building a crypto policy framework that balances innovation, risk, and institutional growth. While there’s still much to be done (especially on stablecoin implementation, DeFi integration, and inter-agency coordination), staking now has a seat at the table in policy conversations that matter.

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If the tax changes materialize, they could be a game-changer, not just for validators and staking service providers, but for the long-term alignment of U.S. policy with the operational realities of blockchain networks.

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This marks a clear departure from the era of regulation by enforcement. It reflects true rulemaking, public consultation, and thoughtful modernization. It’s a welcome shift and how the U.S. can position itself as a global leader in what the White House has called the “Golden Age of Crypto.”

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