SEC wants to ban staking services for US private investors

Crypto exchange Kraken has been ordered to pay $30 million in compensation by the US Securities and Exchange Commission. According to the SEC, crypto-staking services constitute investment contracts under US securities laws and must be registered as such.

The crypto exchange Kraken has to stop its staking services for US customers. This is due to accusations by the SEC that its investment program should have been moldened under securities laws. Kraken confirmed the $30 million compensation payment in a blog post and stated that users in other countries would not be affected. According to Coinbase CEO Brian Armstrong, another move by the SEC to completely ban staking for U.S. retail investors and grab oversight of the crypto market.

Kraken US discontinues staking services

The SEC voted on the decision during a closed-door meeting of commissioners. Kraken would have to stop its staking services for US clients effective immediately. Compared to US citizens, nothing changes for European investors. Staking is the process of locking down a certain amount of a cryptocurrency to participate in the consensus process and validate transactions on a blockchain network. In return, the "staker" receives block rewards.

https://youtu.be/hmPpIjfC9DY

SEC Commissioner Gensler argues in the regulator's announcement that staking services clearly qualify as investment contracts and must be registered as such. The settlement with Kraken thus gives the SEC a significant victory in the battle over oversight of the crypto ecosystem. Finally, this interpretation conveniently sidesteps the debate raging in Washington over whether most cryptocurrencies are themselves securities. However, it does imply an opportunity for the agency to regulate the use of a large number of tokens nonetheless.

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Crypto-staking ban for retail customers?

The decision comes just a day after a tweet from Coinbase CEO Brian Armstrong. He had heard rumors that the SEC would like to impose a complete retail ban on staking - which would have devastating consequences for the industry. Staking doesn't just offer investors an opportunity for passive income. The process is essential for proof-of-stake-based blockchains to ensure sufficient security and decentralization.

https://twitter.com/brian_armstrong/status/1623459237631528960

Fatal for the crypto industry, but potentially desirable for the regulator. If staking is classified as a characteristic of a security comparable to dividends, the SEC could claim jurisdiction over a majority of all cryptocurrencies. This is a goal that Gensler has been striving for since he took office.