One of the largest cryptocurrency exchanges, Krakenfelt the anger of Securities and Exchange Commission (SEC) after failing to register for a staking-as-a-service program.
Payward Ventures, Inc. and Payward Trading Co., Ltd. Form the crypto exchange Kraken. Both companies ceased offering or selling securities through crypto staking services or programs and paid $30 million in squatting, pre-judgment interest, and civil penalties following an SEC review.
What is staking?
Staking is the process by which an investor locks (or “stakes”) a cryptographic token using a blockchain validator, which is part of the process by which the staked cryptotoken validates data on the blockchain. It is intended to be rewarded with new tokens when it becomes a division. When investors offer their tokens to a staking-as-a-service provider, they lose control of those tokens and bear the risks associated with those platforms with little protection.
Attack of the Kraken
Since 2019, Kraken has offered and sold cryptocurrency “staking services” to the general public, according to the SEC complaint. This organization pooled certain crypto assets transferred by investors and staked them on behalf of those investors.
According to the complaint, Kraken alleges that its staking investment program provides an easy-to-use platform to provide profits from Kraken’s efforts on behalf of investors. This includes Kraken’s strategy for obtaining regular investment returns and payments.
SEC chair Gary Gensler “Whether it is through staking-as-a-service, lending, or other means, a cryptocurrency intermediary, when it offers an investment contract in exchange for an investor’s tokens, You must provide the appropriate disclosures and protections required by law.
“Today’s action should make it clear to the market that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection.”
“We have seen on a case-by-case basis the consequences of individuals and companies pitching and offering cryptocurrency investments outside of the protections provided by the federal securities laws. However, it lacks disclosure and will be harmed if it is not received.” Grubir S. Grewal, Director of the SEC’s Enforcement Division, said:
“Today, we have taken another step in protecting retail investors by closing this unregistered cryptocurrency staking program. Not only did they deliver huge returns without being tied down, they also retained the right not to pay any returns at all, all the while giving them absolutely no insight, especially as to their financial situation and whether they even had the means to pay the market returns in the first place. was not obtained,” concludes Grewal.
In addition to discontinuing the staking program and financial relief, Payward Ventures, Inc. and Payward Trading, Ltd will, without granting or denying the allegations of the SEC complaint, make a final decision, subject to court approval. I agreed to make the decision. Permanently prohibited from violating Section 5 of the Securities Act of 1933, they and their control, directly or indirectly, from offering or selling securities through cryptocurrency staking services or staking programs; A permanent ban on all entities.
The SEC investigation Laura Daleard and Elizabeth Goodyunder the supervision of Pole Kim, Jorge G. Tenreiroand David Hirsch, Sachin Velma, Eugene Hansenand james connor.
beat the investor?
The announcement received a lot of backlash. Many players in the space felt that the SEC was content with the ban and did not analyze other avenues of action before giving crypto exchanges a staking ban. for example, Ryan Sean AdamsFounder of Ethereum Show Bankless, offered three options Action taken by the SEC.
you can have:
– Mandatory Retention Statement
– Required staking transparency
– Supports decentralized staking
Got another Gary g instead. Ban hammer to the head. And there is no certainty that you won’t come to decentralized staking next.
You are driving it all offshore.
— RYAN SΞAN ADAMS – rsa.eth 🏴🦇🔊 (@RyanSAdams) February 9, 2023
As mentioned at the end of the tweet, concerns about operating cryptocurrency services offshore are a serious concern. Others in the industry also shared this sentiment. Christine SmithCEO blockchain Associationsaid in a statement that Congress, not the SEC, should enact blockchain legislation.
“The SEC continues to attack U.S. cryptocurrency companies and individual investors, regulating them through law enforcement and undermining the potential of U.S. public blockchain networks. Staking is an important part of the crypto ecosystem. Part, allowing individuals to participate in a decentralized network, giving investors more options for earning passive income.
“Today’s settlement is not law, but it is another example of why we need Congress, not regulators, to determine the appropriate laws for this new technology. and risk depriving individual users of their online freedom.” Smith said.
Inclusiveness is key
speak exclusively Fintech Times, Stephen rustCEO trufflethe data aggregation platform said:
“By the time they step into disaster, it’s always too late. Customers have already lost millions, if not billions of dollars, and even though these entities are often regulated Fraud is taking place.
“Slow and backward regulation raises the question of whether it is fit for purpose in an industry like cryptocurrency that innovates faster than most.
“Despite the wishes of the US government, cryptocurrencies and blockchain will continue to grow and develop globally.
“So if the SEC continues to exclude US citizens from participating in this new digital revolution, the US economy will be left behind as the next internet moves elsewhere. out of the U.S. This is a short-sighted, regressive, and frankly disturbing move.
“Only by participating in cryptocurrencies and blockchain through decentralized applications can participants resist the censorship that pervades the traditional and centralized financial system.”
Disagreement within the SEC
Perhaps the most unexpected statement to come out of the announcement came from the SEC itself. Commissioner of the SEC, Hester Perth publicly criticized its own agency for the shutdown of US crypto exchange Kraken’s crypto staking program.in her complete statementshe explained, “Using enforcement action to tell people what the law is in an emerging industry is not an efficient or fair way of regulation.”
He also explained that some customers have used Kraken’s services in the past. Simply ripping the rug from under customers and organizations leaves many feeling left out and abandoned. Ultimately, she said:
Hugo Vaults Oliveirasecretary and founding member new economy Institutementioned Peirce’s comment when speaking exclusively Fintech Times. He said of the impact on investor confidence after the ban:
“Investors in crypto organizations exposed to the U.S. market will lose confidence in how innovative and competitive their projects can be without risking hostile fines. refusing to articulate the rules the industry should follow, only some organizations will be affected by this type of SEC regulation from enforcement.
“SEC Commissioner Hester Peirce best articulates her objection by arguing that Kraken could not have even registered a staking program, which the exchange has been accused of. This is a serious violation.
“Finally, retail investors may not feel more secure than they do now. The SEC accused Kraken of profiting from its clients’ pooled resources, but Pierce Commissioner said Kraken’s offerings I agree with “well served people”. Because users who wanted to go the non-administrative route and stake their assets themselves are likely already doing that.
“We hope that those who prefer the convenience of doing so on a trusted platform are fully aware of the risks involved. Celsius You will not feel comfortable managing staked assets yourself. ”
Other staking services should be careful
digital asset trading platform, fire blockChief Legal and Compliance Officer Jason Allegrante It is not just investors who will be affected, but other exchanges will also be affected.
“The SEC has declared its power to regulate for some time. Questions have been raised as to why they have been less aggressive over the past six months.
“This is a broader trend and, in many ways, a reaction to what we have seen in the cryptocurrency market over the past few months, not just the SEC but banking institutions alike, and the traditional financial markets. We are taking steps to limit our exposure.Retail consumers are moving into the cryptocurrency sector and need to be monitored very closely.”