Will SEC Ban Crypto Staking in the USA?
Since the collapse of FTX the US Securities and Exchange Commission (SEC) has been putting concerted efforts to regulate cryptocurrency. Its major aim is to protect consumers from unscrupulous crypto investment deals. As such, one of its current thrusts is to monitor and control unregulated staking services.
Right now, it is handling the issue of Kraken which it charges for offering unregulated retail staking services.
The Reason Why SEC Has Taken Action Against Kraken
The Securities and Exchange Commission has laid a charge on Kraken for offering an unregistered crypto asset staking-as-a-service program, which according to some sources is not staking-based at all. With this service, crypto users stake their cryptocurrencies with Kraken which has high returns of up to 21%.
The two sides have, however, reached an agreement that Kraken should stop the retail staking service with immediate effect as well as pay $30 million in civil penalties, prejudgment interest, and disgorgement.
In an email statement that has been made public, The Kraken spokesman said, “Starting today, with the exception of staked ether, assets enrolled in the on-chain staking program by U.S. clients will automatically be unstacked and will no longer earn staking rewards. Further, U.S. clients will not be able to stake additional assets, including ETH.”
Kraken’s staking service has been going on for a long time. According to SEC, it has been offering its staking service since 2019. In this case, Kraken would pool its users’ crypto resources and collectively invest them on their behalf.
In simple terms, staking is a type of investment where the investors lock up their cryptocurrencies in a protocol with the objective of getting a reward. Staking cryptocurrencies helps to secure a network since the validators verify the transactions that take place on the blockchain.
SEC asserts that any intermediary that offers lending, staking-as-a-service, or any type of investment on behalf of the investors should be transparent in their dealings. In this case, it should provide the disclosures which the law specifies.
The SEC’s investigation, conducted by Laura D’Allaird and Elizabeth Goody, under the supervision of a team that comprised Sachin Verma, Eugene Hansen, Paul Kim, Jorge G. Tenreiro, James Connor, and David Hirsch concluded that Kraken has not registered the service and has not been providing the required disclosures.
SEC’s motive for banning Kraken’s staking program
As previously mentioned, SEC’s main motive for banning Kraken’s token staking program is to protect the consumer. It contends that although Kraken has been offering the staking service for a long time, it has not complied with the necessary regulation. It did not provide the required financial disclosure to show its ability to pay the marketed staking returns.
The SEC has also argued that Kraken’s retail staking program meets the Howey Test for security since it gives rewards to people to secure cryptocurrency networks. Also, staking has its own risks which can cause the investors to lose their invested funds. In similar circumstances, some companies cheat or defraud investors.
However, the different statements that the SEC chairperson, Gary Gensler, made show that its intention is not to impose a crypto staking ban on networks such as Ethereum. Its motive is to bring transparency to centralized cryptocurrency exchanges such as Kraken. This is because these entities should adhere to the same rules that apply to traditional financial companies.
Nevertheless, there are prominent people in the crypto sector who believe that classifying staking as a security is inappropriate. For instance, the executive director of the Proof of Stake Alliance (POSA), Alison Mangiero said that “her organization opposes any assertion that staking constitutes an unregistered security.”
She said, “Staking tends to get misconstrued with unrelated activities like lending, but staking is fundamentally a way for anyone to join in providing security for proof-of-stake networks.”
She added “The existence of staking service providers allows everyday Americans to participate in staking, which democratizes network consensus and validation and is core to the continued growth of the global decentralized internet. Any regulatory action that runs counter to this misunderstands the nature of staking, and hinders America’s ongoing efforts to foster domestic technological innovation”.
Coinbase CEO Brian Armstrong raised a similar sentiment on the possibility of the United States’ crypto staking ban. He tweeted, “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.”
Why Does The Crypto Staking Ban Pose A Threat to The United States?
If the United States bans crypto staking there are several possible repercussions. First, investors who stake in regulated exchanges like Kraken will opt to invest in decentralized exchanges. Sadly, the decentralized exchanges are riskier than the centralized ones which will expose the United States citizen to “opaque operators” where there are greater risks of bad actors that can cause economic damage.
Second, banning crypto staking will stifle innovation in the United States as blockchain firms are likely to invest in more crypto-friendly destinations. Also, the United States will become less competitive in its blockchain activities than other countries.
How to Stake at Crypto Exchange
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Ways to earn a yield on your crypto:
● Lend and Earn
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● Liquidity Mining
● Crypto Lending
● Cloud Mining
● Copy Trading
Conclusion
In its efforts to protect consumers in the United States the US Securities and Exchange Commission (SEC) has laid a charge on Kraken for offering an unregistered token staking service.
However, analysts believe that a blanket ban on crypto staking would threaten USA’s dominance in the blockchain sector as some blockchain firms may opt to invest in other countries.
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