Will SEC Ban Crypto Staking in the USA
TL; DR
The Securities and Exchange Commission is accusing Kraken of offering an unregistered retail staking service.
The motive for SEC to ban unregistered token staking services is to protect the consumers.
Kraken has agreed to discontinue its retail staking service programme.
Banning staking will force blockchain firms to stop investing in the United States and relocate to crypto-friendly countries.
Introduction
Since the collapse of FTX the US Securities and Exchange Commission (SEC) has been putting concerted effort to regulate cryptocurrency. Its major aim is to protect the consumers from unscrupulous crypto investment deals. As such, one of its current thrust is to monitor and control unregulated staking services.
Right now, it is handling the issue of Kraken which it charges for offering unregulated retail staking services.
The reason why SEC has taken action against Kraken
The Securities and Exchange Commission has laid a charge on Kraken for offering an unregistered crypto asset staking-as-a-service programme, which according to some sources is not staking based at all. With this service, crypto users stake their cryptocurrencies with Kraken which has high returns of up to 21%.
Kraken staking ban - Gfinityesport
The two sides have, however, reached an agreement that Kraken should stop the retail staking service with immediate effect as well as paying $30 million in civil penalties, prejudgment interest and disgorgement.
In an email statement that has been made public, The Kraken spokesman said, “Starting today, with the exception of staked ether, assets enrolled in the on-chain staking program by U.S. clients will automatically be unstaked and will no longer earn staking rewards. Further, U.S. clients will not be able to stake additional assets, including ETH.”
Kraken’s staking service has been going for a long time. According to SEC, it has been offering its staking service since 2019. In this case, Kraken would pool its users’ crypto resources and collectively invest them on their behalf.
In simple terms, staking is a type of investment where the investors lock up their cryptocurrencies in a protocol with the objective of getting a reward. Staking cryptocurrencies helps to secure a network since the validators verify the transactions that take place on the blockchain.
SEC asserts that any intermediary that offers lending, staking-as-a-service or any type of investment on behalf of the investors should be transparent in their dealings. In this case, it should provide the disclosures which the law specifies.
The SEC’s investigation, conducted by Laura D’Allaird and Elizabeth Goody, under the supervision of a team that comprised Sachin Verma, Eugene Hansen, Paul Kim, Jorge G. Tenreiro, James Connor and David Hirsch concluded that Kraken has not registered the service and has not been providing the required disclosures.
Read also: How are cryptocurrencies currently regulated in countries around the world?
SEC’s motive for banning Kraken’s staking program
As previously mentioned, SEC’s main motive for banning Kraken’s token staking program is to protect the consumer. It contends that although Kraken has been offering the staking service for a long time, it has not complied with the necessary regulation. It did not provide the required financial disclosure to show its ability to pay the marketed staking returns.
The SEC has also argued that Kraken’s retail staking program meets the Howey Test for security since it gives rewards to people to secure cryptocurrency networks. Also, staking has its own risks which can cause the investors to lose their invested funds. In similar circumstances some companies cheat or defraud the investors.
Sec to protect consumers- Cryptoslate
However, the different statements which the SEC chairperson, Gary Gensler, made show that its intention is not to impose crypto staking ban on networks such as Ethereum. Its motive is to bring transparency to centralized cryptocurrency exchanges such as Kraken. This is because these entities should adhere to the same rules that apply to traditional financial companies.
Nevertheless, there are prominent people in the crypto sector who believe that classifying staking as a security is inappropriate. For instance, the utive director of the Proof of Stake Alliance (POSA), Alison Mangiero said that “her organization opposes any assertion that staking constitutes an unregistered security.”
Read also: Understanding how the Merge puts Ethereum in Sec’s crosshair
She said, “”Staking tends to get misconstrued with unrelated activities like lending, but staking is fundamentally a way for anyone to join in providing security for proof-of-stake networks.”
She added “The existence of staking service providers allows everyday Americans to participate in staking, which democratizes network consensus and validation and is core to the continued growth of the global decentralized internet. Any regulatory action that runs counter to this misunderstands the nature of staking, and hinders America’s ongoing efforts to foster domestic technological innovation”.
Coinbase CEO Brian Armstrong raised a similar sentiment on the possibility of the United States’ crypto staking ban. He tweeted, “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.”
Read also: Proof-of-work vs Proof-of-Stake: Which One is Better?
Why does the crypto staking ban pose a threat to the United States?
If the United States bans crypto staking there are several possible repercussions. First, investors who stake in regulated exchanges like Kraken will opt to invest in decentralized exchanges. Sadly, the decentralized exchanges are riskier than the centralized ones which will expose the United States citizen to “opaque operators’ ‘ where there are greater risks of bad actors that can cause economic damage.
Second, banning crypto staking will stifle innovation in the United States as blockchain firms are likely to invest in more crypto-friendly destinations. Also, the United States will become less competitive in its blockchain activities than other countries.
How to stake at Gate.io
Gate.io lets you earn from the crypto you hold in a plethora of exciting ways. Unlike with staking, some products and services on Gate.io enable you to earn yield on crypto without any lockups or risk of losing your principle.
Ways to earn yield on your crypto:
- Lend and Earn
- HODL and Earn
- Liquidity Mining
- Crypto Lending
- Cloud Mining
- Copy Trading
Conclusion
In its efforts to protect consumers in the United States the US Securities and Exchange Commission (SEC) has laid a charge on Kraken for offering an unregistered token staking service.
However, analysts believe that a blanket ban on crypto staking would threaten USA’s dominance in the blockchain sector as some blockchain firms may opt to invest in other countries.
Can I take my crypto out of staking?
An investor can take cryptocurrency out of staking after the expiry of the staking period. During the staking period you will earn a reward. If you want to withdraw the cryptocurrency you first unstake them at the end of the period.
How to stake crypto?
The first stage when you want to stake a certain cryptocurrency is to buy and transfer it to the platform where you want to stake it. At times, however, you can stake the tokens which are in your wallet. When the cryptocurrency is in the right wallet you activate the staking command.
Is there any reason not to stake crypto?
There are several reasons that can stop an investor from staking the crypto. For example, you may not stake your tokens if the rate of return is very low. Also, you may choose not to stake your cryptocurrency if the staking platform is not very secure since you may lose them.
Is staking considered a security?
Staking is not a security under most national laws including the United States one. Also, it does not qualify to be a security under the Howey test. Basically, staking serves the same purpose as mining, that of securing a blockchain.
