According to the U.S. Securities and Exchange Commission (SEC), crypto exchange Kraken will immediately terminate its crypto-staking-as-a-service platform for U.S. users and pay $30 million to resolve claims that it provided unregistered securities.
The SEC said that Payward Ventures, Inc. and Payward Trading Ltd., the registered businesses that constitute Kraken, will discontinue their staking services and programs. Since at least 2019, the programs have provided the general public with access to staking services.
The SEC release stated that the complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts.
Kraken stated that it would immediately unstake any assets staked by U.S. clients except staked ether, which would not be unstaked until the Ethereum Network’s Shanghai update goes into effect. Additionally, U.S. clients will be unable to stake additional assets, including ether.
Thursday, the SEC filed its case in federal court.
Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.
— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023
While Kraken’s website advertised a 20% return on its staking service, the SEC’s news release said it might reach 21%.
The SEC’s description of Kraken’s staking system emphasised the risks investors assume when staking their tokens with staking-as-a-service providers, who offer very little protection.
Staking is how proof-of-stake blockchain networks, such as Ethereum, maintain their security. The network’s decentralised validators post crypto as collateral to guarantee their integrity. In exchange for executing transactions, they receive more tokens. Numerous crypto-stakes lend their tokens to the service providers that operate the nodes and split the profits.
Coinbase (COIN) and several decentralised protocols, such as Lido, enable staking to its consumers.
According to SEC Chair Gary Gensler, whether through staking-as-a-service, lending, or other mechanisms, crypto intermediaries must provide the appropriate disclosures and protections when selling investment contracts in return for investors’ tokens. “Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection.”