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Crypto Staking No More: Kraken Settles with US SEC Over Staking Program

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  • Kraken, a cryptocurrency exchange, has agreed to pay a $30 million settlement to the US Securities and Exchange Commission (SEC) to settle charges of offering an unregistered sale of securities through its staking-as-a-service program.
  • The SEC charged Kraken for failing to register its offer and sale of the staking program, alleging that it was an illegal sale of securities and lacked proper disclosures for investors.
  • The settlement has raised concerns for rival crypto exchange Coinbase, which also offers staking services, with its CEO Brian Armstrong expressing the importance of encouraging crypto innovation in the US and ensuring it is not stifled by unclear regulations.

To settle with the US Securities and Exchange Commission, cryptocurrency exchange Kraken will halt its staking program and agreed to pay $30 million in disgorgement, prejudgment interest and civil penalties. This settlement comes after the SEC’s charge against the crypto exchange after it failed to register its offer and sale of “crypto asset staking-as-a-service program.”

Prior to this, the SEC alleged that Kraken’s staking service was an illegal sale of securities. According to SEC Chair Gary Gensler, providers of staking-as-a-service are generally not providing proper disclosures and there is not a “reliable way as an investor to know the answers to these important investment questions.” 

“According to the SEC’s complaint, since 2019, Kraken has offered and sold its crypto asset “staking services” to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors. Staking is a process in which investors lock up – or “stake” – their crypto tokens with a blockchain validator with the goal of being rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain. When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms, with very little protection. The complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts,” their press release explained. 

Gensler then emphasized that “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… Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”

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Staking in CoinBase 

Since the SEC went after Kraken, its rival Coinbase–which also offers crypto staking– also suffered market drawbacks. Now, Coinbase’s chief legal officer Paul Grewal stated, in response to Kraken’s settlement, that the company’s on-chain staking services are “fundamentally different.” 

Moreover, Coinbase CEO and co-founder Brian Armstrong also expressed his views regarding the rumors that the SEC would get rid of crypto staking in the U.S. for retail customer, notign that he hopes that’s not the case as “I believe it would be a terrible path for the U.S. if that was allowed to happen.”

“Staking is a really important innovation in crypto. 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… We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules. When it comes to financial services and web3, it’s a matter of national security that these capabilities be built out in the U.S,” he explained in a twitter thread. 

This article is published on BitPinas.com: Crypto Staking No More: Kraken Settles with US SEC Over Staking Program

Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.

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