The SEC (U.S. Securities and Exchange Commission) announced on February 9 that the staking service for U.S. customers of the crypto asset (virtual currency) exchange Kraken will provide unregistered securities. At the time, Kraken announced it would immediately stop offering the service and pay a $30 million settlement.
This news raises many questions about how it will affect staking in the US.
Before we get into the details, let’s define some terms. Proof of Stake (PoS) refers to a consensus mechanism in which nodes are supported by those who lock, or “stake”, crypto assets. What makes it different from Proof of Work (PoW) is that instead of putting computational power into keeping the blockchain secure, it puts “money” into it.
Staking has received increasing attention in recent years, especially with the 2022 transition of the Ethereum blockchain from PoW to PoS. And various companies offer staking services. This is because running a node yourself is not so easy.
Remarks by Chairman Gensler
Coinbase CEO Brian Armstrong sounded the alarm on Tuesday, tweeting rumors that the SEC is trying to ban retail investors from staking.
But the SEC seems to be targeting companies like Kraken that offer staking services and promise yields to their clients.
To put things in perspective, let’s take a look at what SEC Chairman Gary Gensler has said in the past. In September 2022, the Chairman said staking could meet the requirements of the Howey Test (a test of whether an investment is a security).
He also touched on intermediaries in an interview with The Wall Street Journal, saying that staking through intermediaries “is like lending in a different label. It’s very similar.” .
After the Kraken announcement and Armstrong’s tweet, will the SEC target all staking services in the US and how can crypto companies offer staking services without incurring the wrath of the authorities? The big question is whether the SEC will provide any guidance to companies that want to offer their services.
An SEC official said at a press conference after the Kraken settlement announcement that the SEC essentially sees offering staking services as offering other types of securities.
That means companies that want to offer staking services must be registered with the SEC as securities platforms, be licensed, and make regular disclosures.
Securities in this case refer to the investment program itself, the description Kraken makes when it offers the product and the contract it enters into with users, another person said.
There are also strong objections within the SEC. Commissioner Hester Peirce said on the surface it looked like a licensing issue, but that things could be more complicated.
“The provision of staking services, etc. at issue here requires the approval of the entire staking program, or individual approvals for each crypto asset staking program. There are many complex issues, such as what will be the impact of
Officials with the SEC declined to comment on whether the incident will have any impact on the staking service as a whole.
one more element
Another element of the SEC’s lawsuit against Kraken is that the company stipulated the content of staking rewards for its users. Kraken’s service did more than just send investors the actual rewards of the protocol.
This may have been a big factor here. As attorney Gabe Shapiro points out, the case is likely to “make a big legal difference.”
An SEC official told a press conference that he could not comment much on this point, but urged not to speculate too much.
｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
｜Image: SEC (Shutterstock)
｜Original: What Does Kraken’s SEC Settlement Mean for Crypto Staking?
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