SEC targets crypto ‘staking’ with Kraken crackdownPosted On: Feb. 10, 2023 10:32 AM CST
(Reuters) — Crypto exchange Kraken agreed to shut down its cryptocurrency staking service and pay $30 million in penalties to settle U.S. Securities and Exchange Commission charges that it failed to register the program, the agency said Thursday, in a move that could cause headaches for platforms with similar offerings.
The settlement marks the SEC's first crackdown on staking, a common service offered at both centralized and decentralized crypto exchanges, including most of the major exchanges in the United States such as Coinbase and Binance US.
In a video message posted to Twitter on Thursday, SEC chair Gary Gensler said that most staking providers fail to provide customers proper disclosures such as how a company is protecting a user's staked assets. Those providers should register their staking services with the SEC, he said.
"When a company or platform offers you these kinds of returns, whether they call their services 'lending,' 'earn,' 'rewards,' 'APY,' or 'staking' - that relationship should come with the protections of the federal securities laws," Mr. Gensler said.
Owners of crypto assets that use a "proof-of-stake" blockchain can stake some of their assets to potentially take part in the process of validating transactions. In exchange for their work, validators are often rewarded with newly created crypto assets.
Kraken offers its customers the ability to “stake” certain crypto tokens in order to earn rewards. Its website advertises that users can earn up to 20% in annual yield if they pledge to lock up their assets for a certain period of time.
The San Francisco-based platform did not admit or deny the allegations in the SEC's complaint.
In a statement, Kraken said its agreement to end its on-chain staking services would affect only U.S. clients.