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 SEC crackdown on Kraken staking program 

 

The cryptocurrency platform Kraken has been forced to end its staking program in the United States and pay a 30 million dollar fine after not registering the program. The Securities and Exchange Commission says that the crypto exchange sold unregistered securities to the American people without proper disclosure. According to the SEC, more than 135,000 American platform users registered to stake their holdings in Kraken's new program. (Source: SEC.gov)

 

SEC chair Gary Gensler said in an interview with Andrew Ross Sorkin on CNBC's morning market show "Squawk box" that the problem is not the staking program itself but rather that they were not disclosing the risk. (Source: CNBC)

 

The Security and Exchange Commission claims they are technology neutral, and staking is allowed as long as the platforms are registered correctly with the SEC and staking risks are disclosed in accordance with the law. 

 

In the United States, investors can take any risks they want, but the investing platform is required to have full, fair, and truthful disclosure. The SEC claims that Kraken was not complying with this. (Source: CNBC)

 

What is crypto staking? 

 

Staking is a process in which investors earn interest by locking down their tokens and allowing them to be used to facilitate trades on the blockchain. It's similar to a high-yield savings account. Staking is risky because once a holder transfers their assets to the platform, the platform has control of that currency. If they go bankrupt, there is no protection in place for stakers who turned over their assets to the crypto  

 

Kraken is still offering this service outside of the United States. Many believe that this regulation and crack down on crypto will only push it offshore, making it even riskier for users who continue to participate with a VPN 

 

The crypto fallout

 

This is the SEC's first crackdown on crypto staking, and it has caused some tension in the crypto world. Crypto's stability and longevity have been called into question in the past months since many coins have dropped drastically in value, combined with several scandals that have rocked the crypto world. Since this announcement, crypto has continued to fall further. On Thursday, Coinbase CEO Brian Armstrong tweeted about rumors "that the SEC would like to get rid of Crypto staking in the U.S. for retail customers."

A twitter thread with 2 of 6 tweets by Coinbase CEO Brian Armstrong talking about the SEC fine against Kraken cryptocurrency platform’s staking program.


 

 

Armstrong claims that this would be a "terrible path" for the U.S. and that staking is a "really important innovation in crypto" because it leads to many advancements "including scalability, increased security, and reduced carbon footprints" in the crypto space. (Source: Twitter)

 

 

In the six-tweet thread, he also claims that staking is not a security, pointing to an article published by Rodrigo Seira, Amy Aixi Zhang, and Jake Chervinsky on Paradigm. The article, discussing ETH and whether its a security or not, argues that its new staking mechanism does not make the Ether token a security. They claim this assertion "stretches[es] the interpretation of the Howey test beyond recognition." (source: Paradigm)

 

Since his tweets on Thursday, shares in Armstrong crypto exchange platform Coinbase dropped sharply. 

 

 

 

 

 

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