Update (320pm ET): As Coindesk reported earlier, the SEC confirmed that it has indeed reached a settlement with Kraken under which the exchange will pay $30 million to settle allegations its broke securities rules, and would end its crypto staking program as it involved “unregistered securities.” It is unclear if Ethereum is among the alleged “securities”:
- *CRYPTO EXCHANGE KRAKEN ENDS STAKING PROGRAM IN SEC SETTLEMENT
- *SEC SAYS KRAKEN STAKING INVOLVED UNREGISTERED SECURITIES
- *SEC ALLEGES IN COURT CASE THAT KRAKEN STAKING BROKE RULES
- *SEC SUES KRAKEN IN FEDERAL COURT IN CALIFORNIA
“Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection,” SEC Chair Gary Gensler said in a statement.
* * *
Bitcoin and the broader crypto universe tumbled…
… and slid to three week lows, breaching support that had held since late January…
… after a report from Coindesk, which cites an “industry source briefed on the matter” that crypto exchange Kraken agreed to shut its cryptocurrency-staking operations to settle charges with the SEC; the report confirms earlier news from Bloomberg that Kraken was close to a settlement with the SEC over offering unregistered securities on Wednesday.
Kraken, like most crypto exchange, offers a number of yield services under its staking umbrella, including a crypto-lending product offering up to 24% yield. This is also expected to shut down under the settlement, the industry person said. Kraken’s staking service offered a 20% APY, promising to send customers staking rewards twice per week, according to its website.
According to the report, the SEC will discuss and vote on the settlement during a closed-door commissioner meeting on Thursday afternoon, and an announcement may around 4 p.m. ET.
The vote comes one day after Coinbase CEO Brian Armstrong tweeted that he’d heard rumors the SEC would bar retail customers from engaging in staking, the technique of pledging crypto tokens to run proo-of-stake blockchains such as Ethereum.
1/ We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.
— Brian Armstrong (@brian_armstrong) February 8, 2023
Since Coinbase offers its own staking services, especially for clients who are long ETH, a potential ban on staking would prove to be catastrophic for US-based exchanges, and it would force virtually all domestic users of staking securities to offshore exchanges like Binance. As Armstrong reminds us, “regulation by enforcement doesn’t work. It encourages companies to operate offshore, which is what happened with FTX.”
But to SEC Chair Gary Gensler, a lifelong Democrat who was humiliated by SBF epic fraud who had managed to worm his way into Democrats’ best graces thanks to his tens of millions in bribes, none of that matters: previously the former Goldman partner said he believes staking through intermediaries – like Kraken – may meet the requirements of the Howey Test, a decades-old U.S. Supreme Court case commonly used as one measure of whether something can be defined as a security under U.S. laws. Staking looks similar to lending, Gensler said at the time. The SEC has brought and settled charges with lending companies before, such as now-bankrupt lender BlockFi.
Here, too, Armstrong disagrees:
3/ Staking is not a security. Here’s a good primer: https://t.co/G2YLL3IPyo
— Brian Armstrong (@brian_armstrong) February 8, 2023
A Kraken settlement would help Gensler’s mission, giving his agency a big win as it continues its efforts to police the broader crypto ecosystem. The majority of people staking on Ethereum, for example, use services, according to Dune Analytics.
Whether or not the SEC goes so far as to land a crushing blow on US-based exchanges and in the process forces virtually all cryptos offshore, remains to be seen, but judging by the swift selling int he crypto market, many are not taking chances.
Tyler Durden
Thu, 02/09/2023 – 15:13
