• SEC alleged that Kraken’s crypto staking services were against US laws. 
• Kraken will pay $30 million in settlements and shut down US crypto-staking services.
• Non United States customers remain unaffected. 

There is a buzz around crypto staking. The SEC had charged crypto exchange Kraken concern with its crypto staking-as-a-service platform for United States customers; they had to immediately end the services and pay $30 million in settlements, as announced by the financial watchdog on Thursday. 

Securities and Exchange Commission(SEC)  and Kraken

The SEC filed the lawsuit in the federal court on Thursday. The crypto exchange Kraken comprises the registered companies Payward Ventures Inc. and Payward Trading Ltd. Now as per the verdict by the financial watchdog of the United States, they will end the staking services and programs. It should be noted that the programs were offered to the general public allowing access to staking services in 2019. 

SEC statement reads as:

“The complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that device from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts.”

In response to the verdict, Kraken said in a blog post that they would automatically un-stake all the assets staked by US clients, but ether. This will not be un-staked until Ethereum’s Shanghai upgrade takes effect. Then the client of the United States would be unable to stake newer assets, including ETH, while non-US clients remain unaffected. 

In the meantime, Kraken’s website still offers a 20% yield on their staking services, while the press release by SEC hints that it may be higher, nearly 21%. The categorization by the SEC of Kraken’s staking setup hints at the risks investors take when stealing their tokens with “staking-as-a-service” providers. In return, they get “very little protection.”

What is Staking?

Staking is a process through which blockchain networks based on proof-of-stake, for instance, Ethereum, maintain their security. The decentralized validators on the network post crypto as collateral, attesting to their honesty. They get rewarded with more tokens in return for processing transactions. The majority of crypto stakers tend to loan their tokens to the service provider operating the nodes and shares in return. 

The biggest crypto exchange in the United States, Coinbase (COIN), also offers staking services for their customers, along with many decentralized protocols like Lido. 

SEC chair Gary Gensler said that what happened today clearly indicates to the marketplace that all staking-as-a-service providers have to register and provide complete, just and truthful disclosure and investor protection. Further stating 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.”

Ritika Sharma

With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.