Inside Staking

Staking allows cryptocurrency holders to earn rewards for helping secure a blockchain network. For SMSFs, however, the way staking is implemented is critical. The ATO and auditors will closely assess whether the activity introduces counterparty risk, undermines exclusive control, or breaches the sole purpose test.

Direct On-Chain Staking (Generally Acceptable)

• The SMSF controls its assets in a wallet (hardware or institutional custody) registered in the fund’s legal name.
• The fund delegates tokens directly to a validator or runs its own validator. The assets remain in the SMSF’s wallet – delegation does not involve transferring coins out.
• Rewards are distributed on-chain and flow back to an address controlled by the SMSF.
• The fund can cease delegation at any time without requiring a third party’s consent.

Risk Profile:

• Counterparty risk is minimal because the SMSF never surrenders custody.
• Smart contract or validator risk still exists (slashing, downtime penalties), but these are transparent, protocol-level risks rather than reliance on an external service provider.

Audit Requirements:

• Evidence of wallet addresses and staking transactions.
• Trustee minutes documenting the staking decision.
• Records of staking income and penalties (if applicable).

Third-Party or Custodial Staking (Problematic)

Examples: Ledger’s integrated staking and swap services (via Cripto InterCambio, Lido, or other providers), Binance Earn, Coinbase staking.

• Coins are transferred to or locked with a third party who pools or rehypothecates them.
• The SMSF no longer has exclusive legal control; the third party holds custody.
• Trustees rely on the solvency, honesty, and operational integrity of the provider.

Risk Profile:

• Counterparty risk is material. If the provider is hacked, becomes insolvent, mismanages funds, or fails to pay rewards, the SMSF has no enforceable claim to its coins.
• Assets may be exposed to jurisdictional risk (offshore custodians, unclear regulatory protection).
• In many cases, tokens are “wrapped” or replaced with derivative representations in the staking pool – creating additional risk of mismatch between the fund’s asset register and what is actually controlled on-chain.

Audit Concerns:

• Auditors will question whether the SMSF can prove exclusive ownership and control once assets leave the wallet.
• Evidence of control is limited to provider statements, which may not satisfy ATO requirements.
• Using such services may be interpreted as exposing retirement savings to unacceptable speculative or third-party risk.

Counterparty Risk Explained

In SMSF terms, counterparty risk arises whenever the fund’s assets are dependent on a third party’s solvency, honesty, or operational security.

• Direct staking minimises counterparty risk because the SMSF maintains on-chain control.
• Third-party staking introduces multiple risk layers:
• Custodian or exchange insolvency.
• Hacks or loss of pooled funds.
• Failure to distribute staking rewards accurately.
• Legal enforceability issues if disputes arise across jurisdictions.

The ATO has not provided staking-specific rulings, but the general requirement that SMSFs must avoid unnecessary risk and prove asset ownership makes counterparty exposure highly problematic.

The Final Buzz

• Direct on-chain delegation (self-managed staking) is acceptable if well documented: the SMSF retains private keys and can show auditors verifiable blockchain evidence.
• Third-party or integrated staking services (e.g. Ledger’s Cripto InterCambio, exchange staking) are problematic because they introduce material counterparty risk and break the principle of exclusive control.

If staking is pursued in an SMSF, it should be done only through direct on-chain delegation where the fund retains legal title and control of its tokens at all times.

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