- Kraken has agreed to end its “staking” program in the US and pay $30 million to settle an investigation by the SEC.
- The service of the crypto exchange offered returns to its customers if they stake their tokens.
- Bitcoin and Ethereum were trading lower on Friday as the crypto industry pushed back against the SEC move.
Kraken has agreed to stop offering crypto “staking” services to US customers and pay $30 million as part of a settlement with regulators for failing to register the yield-bearing program.
The Securities and Exchange Commission said in a statement on Thursday that this meant the major crypto exchange did not have proper protections for those investors while allowing them to stake their crypto.
The SEC’s move marked its first major action on the stakes, drew pushback from the crypto industry and more enforcement could lie ahead.
“Whether through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investors investment contracts in exchange for tokens, are required to provide the appropriate disclosures and safeguards required by our securities laws. required,” said SEC Chairman Gary Gensler.
“Today’s action should be clear to the market that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection,” he added.
Staking is when investors agree to lock up their holdings of digital assets such as Ethereum, Cardano or Solana to be deployed on the blockchain in exchange for a percentage-based reward. The SEC said that Kraken offered returns of up to 21%.
Kraken will pay $30 million under the SEC settlement to cover civil penalties, prejudgment interest and withdrawals for what the regulator says are funds created through improper conduct.
Crypto leaders reacted strongly to the market regulator’s latest move, which could be another blow to the industry in 2022 after several high-profile players were caught off guard.
“The SEC continues its assault on American crypto companies and retail investors, undermining the potential of public blockchain networks in the United States,” Kristin Smith, CEO of the Blockchain Association, said in a statement.
“Today’s settlement is not law, but another example of why we need Congress — not regulators — to determine the appropriate laws for this new technology.”
The SEC only has jurisdiction over the US markets, so international Kraken customers will still be able to stake their crypto.
The digital asset space is still reeling from the collapse of Kraken’s old rival FTX, which filed for bankruptcy in November after suffering a liquidity crisis.
Its founder, Sam Bankman-Fried, was arrested in the Bahamas and extradited to the US the following month. The SEC accused him of defrauding investors of at least $1.8 billion.
Following news of the Kraken settlement, bitcoin fell 3.7% over the past 24 hours to below $22,000 on Friday, according to data from Coinmarketcap. Meanwhile, Ethereum is down 5.2% to just above $1,500.
Editor’s Note: February 10, 2023 – Kraken will stop offering its staking program to US customers, not all customers as a previous version of this story suggested.
Read more: Coinbase CEO points to rumors that the SEC may ban this popular crypto income-generating technology for US retail investors