Kraken is shutting down its cryptocurrency staking service in the US and will pay $30 million in penalties as part of a settlement with the Securities and Exchange Commission (SEC). The regulator accused the company of selling unregistered securities through its staking programme.
Kraken faces Securities and Exchange Commission’s wrath
Iconic cryptocurrency exchange Kraken, which was charged by the SEC under the guise of its subsidiaries Payward Ventures and Payward Trading, will pay $30 million in fines to the Securities and Exchange Commission for “disgorgement, prejudicial interest and civil penalties.”
As a result, Kraken has agreed to terminate its cryptocurrency staking services for its US customers. As a result, Kraken immediately withdrew from the market all assets of its US customers engaged in its staking programme.
In a statement, the SEC gives more context to this surprising decision:
“The Securities and Exchange Commission charged […] Kraken with failing to register the offer and sale of their crypto asset staking program as a service. […] The complaint alleges that Kraken touts the fact that its staking program offers an easy-to-use platform and benefits that flow from Kraken’s efforts on behalf of investors, including Kraken’s strategies for achieving returns and regular payments. “
This applies to all cryptocurrencies linked to Kraken’s staking service, with the exception of ETH. Indeed, it is not yet possible to withdraw ETH committed to staking, even for the associated rewards. This will only be possible after the Shanghai and Capella updates of the Ethereum blockchain, which should take place in March.
Non-US customers can rest assured that Kraken will continue to offer staking services outside the US through a separate subsidiary.
The beginning of the end for US staking
The move marks the SEC’s first crackdown on staking, a product popular with investors and commonly offered by both centralized and decentralized platforms.
In a video posted on Twitter, SEC Chairman Gary Gensler explains that most staking service providers do not provide their customers with adequate information, particularly on how the company protects cryptocurrencies placed in staking:
“When a company or platform offers you these types of returns, whether it calls its services “Lending,” “Earn,” “Rewards,” “APY,” or “Staking,” this should be accompanied by the protections provided by the federal securities laws. “
Today @SECGov charged Kraken for the unregistered offer and sale of securities through its staking-as-a-service program.
Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries must provide the proper disclosures & safeguards required by our laws.
– Gary Gensler (@GaryGensler) February 9, 2023
This sad news for the crypto ecosystem as a whole comes shortly after Coinbase CEO Brian Armstrong indicated on Twitter that the SEC would like to get rid of crypto staking in the US. The rumour was quickly confirmed.
Is the SEC looking to block all cryptocurrency staking services in the US? The odds are that this is indeed the case, and that the situation is even worse than imagined. All eyes are now on other US platforms, including Coinbase, which also offers a staking service to its customers.
