SEC goes after ‘staking’ in latest blow to crypto industry
The Securities and Exchange Commission’s latest action against the cryptocurrency world came from a $30 million fine extracted from exchange Kraken over its staking service. The move is causing concern for crypto companies that more action might be coming down the line.
The SEC announced that Kraken had agreed to shutter its staking service, accusing it of selling unregistered securities. The SEC said in a news release that Kraken’s exchange, one of the most popular ones for cryptocurrency investors, failed to register “the offer and sale of their crypto asset staking-as-a-service program.”
Staking is when users give exchanges crypto tokens — for example, Ethereum’s ether — in exchange for high yields. The holdings borrowed from users are used to validate cryptocurrency transactions.
“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” said SEC Chair Gary Gensler.
Gensler said that the agency’s action against Kraken should “make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”
The news is significant because cryptocurrency enthusiasts worry that it might be a sign of even more crackdowns against the practice to come. Kraken is one of the biggest companies to offer staking, with 7.6% of all staked ether. Lindo has nearly 30%, and Coinbase has 13% of all staked ether.
There were rumors earlier this week that the SEC would be cracking down on Kraken over its staking service. Coinbase CEO Brian Armstrong took to Twitter to hit at the plan before its announcement. He said he believes “it would be a terrible path for the U.S.” if the SEC were to get rid of crypto staking for retail investors.
“Staking is a really important innovation in crypto,” he said. “It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints.”
The SEC also had dissent within its own ranks. SEC Commissioner Hester Peirce, the sole Republican on the commission, said in her dissent that she thinks there should have been guidance issued first rather than having the SEC speak through enforcement action.
“The program will no longer be available in the United States, and Kraken is enjoined from ever offering a staking service in the United States, registered or not. A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down,” Peirce wrote.
The news about Kraken has put a bit of a damper on the cryptocurrency market, which has been bouncing back from the lows notched during the fallout of last year’s FTX collapse.
Bitcoin was down 4% on Friday morning and more than 7.6% from last week. Ethereum has fallen by 6.3% in the past 24 hours alone, and more than 9% from its high just before news about Kraken began circulating. Almost every one of the biggest cryptocurrencies was in the red on Friday.
