Staking of cryptocurrencies refers to the process of holding onto and supporting a specific cryptocurrency network by locking up one’s coins as collateral. This process helps secure the network and, in return, rewards the staker with more coins. However, the future of crypto staking in the United States is currently in jeopardy.
This was brought to light by a tweet from Coinbase CEO, Brian Armstrong, who expressed his concerns about rumors that the SEC would like to eliminate crypto staking for retail customers in the US. Armstrong stated that such a move would be a “terrible path” for the country and that regulation through enforcement does not work, as it often pushes companies to operate offshore. He also expressed hope that the industry could work together to establish clear rules and find solutions that protect consumers while preserving innovation and national security interests in the US.
SEC Settles with Kraken after ending Staking
Additionally, Kraken has reportedly agreed to close its cryptocurrency staking operations to resolve charges with the US Securities and Exchange Commission (SEC), according to a source familiar with the matter. The SEC is expected to hold a private meeting on Thursday to discuss and vote on the settlement, with a potential announcement to follow later in the day, according to the same source. Kraken’s spokesperson declined to comment on the matter, while the SEC also declined to make any comments after the publication of this article. The staking service offered by Kraken, which included a crypto-lending product offering up to 24% yield, is also expected to shut down as part of the settlement.
It was recently reported by Bloomberg that Kraken was close to a settlement with the SEC over allegations of offering unregistered securities. This comes a day after the CEO of Coinbase, Brian Armstrong, tweeted about rumors that the SEC would prevent retail customers from participating in staking. The SEC declined to comment on Armstrong’s remarks. In his tweet, Brian Armstrong references an article from “Paradigm.xyz” that explains why Ethereum’s new staking model does not make ETH a security, suggesting that the staking mechanics for Ethereum are a key factor in determining if it should be classified as a security.
SEC Chair Gary Gensler has previously stated that he believes staking through intermediaries, such as Kraken, may fall under the definition of securities under US laws, as it resembles lending. The SEC has taken similar actions and settled charges with lending companies in the past, including the now-bankrupt lender BlockFi.
A settlement with Kraken would be a significant win for the SEC as it continues its efforts to regulate the crypto industry. According to data from Dune Analytics, the majority of Ethereum stakers use staking services. Following the publication of this article, the crypto market saw a dip, with Ethereum falling 4.5% in the first 30 minutes.
Brian Armstrong has strong views about the role of staking in the USA.
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