SEC Orders Crypto Exchanges to Register Staking Services
The US Securities and Exchange Commission (SEC) is cracking down on crypto companies offering high returns through staking products, stating that these services must be registered. On February 9, crypto exchange Kraken agreed to shut down its staking service for US customers and pay a $30 million penalty as part of a settlement with the SEC. This move has raised concerns among investors about a possible broader ban on the practice.
What is Staking in the Crypto World?
Staking is a process in which cryptocurrency holders participate in validating transactions on the blockchain by checking the ledger. This task is done by computers in the blockchain network, often via third-party staking services. In return, validators receive a share of the transaction fees or newly created cryptocurrencies, but cannot use the cryptocurrencies involved in the validating process for a certain period of time.
From a customer’s perspective, staking is a way to receive returns on cryptocurrencies by having them “locked up” for a certain period of time. Staking is only possible on proof-of-stake blockchains, such as Ethereum.
Staking Services Offered by Major Crypto Exchanges
Many of the major crypto exchanges offer staking services to their customers for various tokens, including Coinbase, Binance, Crypto.com, Gemini, Huobi, and OKX. These firms offer clients anywhere from a 2% annual percentage yield to as high as 40% APY on certain tokens. The most popular tokens that can be staked include Ethereum, Solana, Polygon, and Avalanche.
While centralized exchanges provide staking as a service to their clients, cryptocurrency owners can also stake their tokens on decentralized exchanges, like Uniswap, but this requires more technical expertise.
SEC’s Stance on Staking Services
The SEC has stated that most staking providers fail to provide customers with proper disclosures about how their cryptocurrency will be used and should register their staking services with the agency. In its settlement with the SEC on February 9, Kraken neither admitted nor denied the SEC’s claim that its staking service should have been registered.
SEC Chair Gary Gensler stated that the action should serve as a warning to other crypto exchanges that offer similar services to US users and that they should come into compliance with securities laws. Kraken will continue to offer staking to customers outside of the United States.
The Future of Staking Services
It is unclear whether other crypto exchanges that offer staking will register those services with the SEC. In a statement, Coinbase said its staking program was not affected by Kraken’s settlement with the SEC because its service is “fundamentally different” than Kraken’s. The Blockchain Association, an industry trade group representing prominent crypto firms in the United States, noted that the Kraken settlement is not law but should serve as a push for Congress to pass cryptocurrency legislation.