By Hannah Lang
(Reuters) -Crypto exchange Kraken has agreed to shut down its cryptocurrency staking service and pay $30 million in penalties to settle charges with the U.S. Securities and Exchange Commission that it failed to register the program, the agency said on Thursday.
The settlement marks the SEC’s first crackdown on staking, a common service offered at both centralized and decentralized crypto exchanges. In a video message posted to Twitter on Thursday, SEC chair Gary Gensler said that most staking providers fail to provide customers proper disclosures such as how a company is protecting a user’s staked assets.
“When a company or platform offers you these kinds of returns, whether they call their services ‘lending,’ ‘earn,’ ‘rewards,’ ‘APY,’ or ‘staking’ – that relationship should come with the protections of the federal securities laws,” Gensler said.
Owners of crypto assets that use a “proof-of-stake” blockchain can stake some of their assets to potentially take part in the process of validating transactions. In exchange for their work, validators are often rewarded with newly created crypto assets.
Kraken offers its customers the ability to “stake” certain crypto tokens in order to earn rewards. Its website advertises that users can earn up to 20% in annual yield if they pledge to lock up their assets for a certain period of time.
The San Francisco-based platform did not admit or deny the allegations in the SEC’s complaint.
In a statement, Kraken said its agreement to end its on-chain staking services would affect only U.S. clients, and that most assets enrolled in its program by U.S. users would be automatically “unstaked” starting on Thursday.
In a series of tweets on Wednesday, Coinbase Chief Executive Officer Brian Armstrong said a ban on staking for U.S. retail customers would be “a terrible path for the U.S.” Coinbase also offers a staking service to its U.S. customers.
“We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules,” Armstrong said.
Kraken in November agreed to pay $362,000 to the U.S. Treasury Department’s Office of Foreign Assets Control to settle civil liability related to apparent violations of sanctions on Iran, and to invest an additional $100,000 in certain sanctions compliance controls.
The company’s incoming chief executive officer told Reuters in September that the exchange had no plans to register with the SEC as a market intermediary, or to delist crypto tokens that the regulator has labeled as securities.
(Reporting by Hannah Lang in Washington, Editing by Franklin Paul and Will Dunham)
