SEC Shuts Down Kraken Staking: BTC, ETH Plunge 4%

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Overview of the Article

  • The SEC recently filed charges against Kraken for offering unregistered staking services and Kraken agreed to halt the service and pay a $30 million fine.
  • The SEC believes that by offering investors returns, staking-as-a-service constitutes a securities sale.
  • Crypto intermediaries are urged to provide proper disclosures and safeguards required by securities laws when providing investment contracts in exchange for tokens.

SEC Charges Against Kraken

Thursday saw Bitcoin drop back to $22,000 after the Securities and Exchange Commission (SEC) laid charges against Kraken for an unregistered offering of its staking services. In response, Kraken agreed to halt the service and pay $30 million in disgorgement, prejudgment interest, and civil penalties, without admitting or denying any wrongdoing.

What is Staking-as-a-Service?

Staking-as-a-Service involves pooling users‘ cryptocurrency in exchange for a promised return. According to the SEC’s press release, letting users hand over their crypto in this way constitutes a securities sale. SEC Chair Gary Gensler commented on this saying: „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.“ He also stated that other staking platforms ought to register and provide proper disclosure about any risks involved. Gensler has previously argued that proof of stake cryptocurrencies may well be securities themselves.

Protecting Investors from Risks

Gurbir S. Grewal from the Division of Enforcement said that shutting down Kraken’s service will help protect investors from its offerings which provided returns „untethered to any economic realities“ and retained the right to pay no interest whatsoever.

Conclusion

Cryptocurrency exchanges should take note of Thursday’s actions as they need to ensure their products comply with applicable regulations otherwise they risk facing fines like those issued to Kraken. It is also important for exchanges not just consider their own business models but also those of other companies in order to ensure they are not inadvertently running afoul of rules governing digital assets such as ICOs or security token offerings.