It looks like Brian Armstrong of Coinbase fame was right to be as concerned as he was about the SEC and other organizations targeting crypto staking. In the latest headlines, the Securities and Exchange Commission has gone after Coinbase’s competitor Kraken. The exchange has agreed to shut down all its staking services as part of a settlement agreement and pay up to $30 million in fees.
SEC Goes After Kraken
In a complaint against the Northern California-based trading platform, the SEC says the company failed to notify customers engaging in staking activities about the alleged lack of protections being offered. The SEC also says Kraken did not inform them of the company’s overall health, the fees they charged, or how tokens would be handled. A court document submitted by the financial agency reads as follows:
Investors have had no insight into defendants’ financial condition and whether defendants have the means of paying the marketed returns, and indeed, per the Kraken terms of service, defendants retain the right not to pay any investor return.
The practice of staking is still relatively new, though it’s become more popular as time has gone by given that it allows individuals to earn interest on their digital currency units. The process involves a retailer or other crypto holding locking up his or her crypto assets for a set period. During that time, the money is lent out to other parties, and if the funds aren’t paid back by a specific date, the person garners additional payments for having their money locked up longer.
Prior to the SEC’s decision to target Kraken, Armstrong of Coinbase had taken to social media to warn everyone that he had a bad feeling staking would be hit in the coming weeks and months. He said that if staking were to be taken out of the equation, this would bear ugly results for the U.S. and give all competitors – including foreign enemies – a chance to steer ahead both financially and technologically.
He mentioned online:
Staking is an 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. Staking is not a security.
Sadly, the SEC doesn’t seem to agree. In a follow-up statement, the agency reported:
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.
A Lot of People Aren’t Happy
Among those criticizing the SEC’s decision to hit Kraken is Hester Peirce, playfully known as the “Crypto Mom” for her open-mindedness towards blockchain. She said in an interview:
Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.
