Following a ruling by the Security and Exchange Commission (SEC), Kraken has been ordered to pay US$30 million for failing to register its cryptocurrency staking service. The exchange also announced the closure of its cryptocurrency staking service in the US at the request of the SEC. The US financial regulator does not intend to stop the dismantling of the crypto staking in Kraken. This already worries the exchange Coinbase whose CEO was quick to react.
Kraken fined $30 million
The cryptocurrency exchange Kraken will have to pay $30 million in fines. The Securities and Exchange Commission (SEC), which announces it, affirms its decision by explaining that Kraken offers a crypto staking service since 2019 without being registered.
Indeed, according to the American securities laws, any economic operator wishing to implement this staking service must register with the SEC. This registration protects investors by ensuring that sufficient guarantees have been presented by the operator. Kraken has never done this.
Today’s action should send a clear signal to the market that staking providers as a service must register and provide full, fair and truthful disclosure.Gary Gensler, SEC Chairman.
As a reminder, staking is when an investor stores his or her cryptos to participate in transactions that take place on a blockchain and earn some assets in return. With a few limitations, staking is similar to mining in that they reward users for participating in securing a network.
Kraken ends its crypto staking service in the US
In addition to the fine imposed on Kraken, the platform has been asked to cease its crypto staking service. This request from the SEC has been complied with by the exchange. In a statement released on February 9, 2023, Kraken announced the closure of its crypto staking services for US customers.
Following the SEC’s request, Kraken has agreed to terminate its crypto staking services for U.S. customers.Kraken press release
Following this announcement Kraken has withdrawn all staking assets from its US customers. All corresponding rewards have also been withdrawn. These assets will be returned to their owners, Kraken promises. Note that Ethereum assets and associated rewards have not been removed. It would be necessary to wait for the next updates of the Ethereum blockchain for that to be possible. These updates will take place in March.
For non-US customers of Kraken, no worries, the platform announces that the service of staking crypto will be offered as before.
What future for crypto staking in the United States?
The measures imposed on the Kraken exchange probably announce a vast plan to crack down on crypto staking in the United States. Indeed, in a video posted on Twitter, the SEC chairman explained that most staking service providers are not registered with his department. In addition, Gary Gensler accuses crypto platforms of not providing investors with all the proper information.
The fine imposed on Kraken, the closure of its staking service as well as the communication of the SEC chairman were quickly interpreted as a harbinger of the banning of crypto staking in the United States. The rumor was so strong that the CEO of the exchange Coinbase reacted on Twitter.
For Brian Armstrong, a ban on staking would be a terrible path for the United States. The Coinbase CEO sees staking as an innovation that brings increased security, a reduced carbon footprint and plenty of other improvements to crypto. Instead of stifling innovation by banning crypto staking, Brian Armstrong proposes instead that clear rules be developed that protect consumers.
Brian Armstrong, CEO of Coinbase
I hope we can work together to issue clear rules for the industry and propose sensible solutions that protect consumers while preserving innovation.
As a result of the SEC’s stance (or not?), Coinbase has seen significant movement of funds. More than $4.7 billion in USDC exited Coinbase within 24 hours of the SEC’s announcement.
Crypto exchanges have suffered greatly from the FTX collapse in terms of trust. It would be a shame if they were subject to new restrictions in the US. As Dubai has proven to us, it is possible to put in place crypto regulations that promote innovation while protecting consumers. If the SEC persists, U.S. exchanges will do exactly what FTX did: move offshore while keeping U.S. customers. This is counterproductive.
I dream of a world where every citizen has total control over themselves, including their finances. I believe that Bitcoin is one of the tools that will achieve this revolution. Since 2019, I am learning about this cryptocurrency and spreading the word around.