Cryptocurrency exchange Kraken is paying $30 million to settle charges with the Securities and Exchange Commission on Thursday for allegedly violating securities rules by filing its crypto asset staking-as-a-service program with the SEC. Failed to register.
The SEC Chair said, “Whether it is through staking-as-a-service, lending or other means, crypto intermediaries must make the proper disclosures and protections required by our securities laws when offering investment contracts in exchange for investors’ tokens.” Remedy needs to be provided.” Gary Gensler. “Today’s action should make it clear to the marketplace that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection.”
In crypto, staking is an alternative method of mining that validates data stored on the blockchain. Investors lock their tokens in escrow and help verify the next block of data. In return, they get blockchain rewards.
Staking services allow investors to transfer crypto assets to Kraken in exchange for investment returns of up to 21%.
The move comes after Coinbase CEO Brian Armstrong Tweeted late Wednesday night, “We’re hearing rumors that the SEC will want to get rid of cryptocurrencies in the US for retail customers. I hope that’s not the case because I believe it would be a terrible path for the US if its to be permitted.”
Following the SEC action, Ether (ETH-USD) dropped to the day’s low, bringing losses close to 4% in the past 24 hours.
In September, shortly after the second-largest blockchain, Ethereum, transitioned from a proof-of-work to a proof-of-stake protocol, Gensler said cryptocurrencies and intermediaries that allow holders to stake their coins , the securities may be based on the Howe test. Which examines whether investors expect to earn returns from the work of third parties.
“You see, you’re basically an investor in their platform,” Gensler said Thursday. “If it goes down, and we’ve seen a lot recently, you end up in line in bankruptcy court. That’s why it’s so important that these companies and platforms follow securities law.”
Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), testifies before the Senate Banking, Housing and Urban Affairs Committee during an oversight hearing on Capitol Hill on September 15, 2022 in Washington, US. Reuters/Evelyn Hockstein
On Ethereum, Kraken’s staking service accounts for 7.4% of staking activity, while Coinbase accounts for another 12.5%, according to data provided by Dune.
In its latest quarterly report, Coinbase reported its staking business brought in $63 million, or about 11% of its total revenue. Shares of Coinbase Global (COIN) plunged more than 13% on Thursday.
Following the collapse of crypto exchange FTX in December, Gensler told Yahoo Finance that the “runway is getting shorter” for companies to comply with SEC regulations.
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