Crypto exchange Kraken has agreed to shut down its crypto staking service in the United States. This is a move to settle the charges against it by the U.S. Securities and Exchange Commission (SEC).
Kraken, which consists of two companies, Payward Ventures, Inc. and Payward Trading Ltd, will also pay the SEC $30 million in compensation for offering unregistered securities to investors. The SEC’s official website captured the development on February 9, 2023.
Kraken’s stake program, initiated in 2019, allows crypto holders to earn rewards by locking up selected crypto assets in the customer’s spot wallet. The stake program rewards investors with up to 24% annual interest and an automatic claim twice weekly.
Kraken to Unstake U.S. Clients’ Assets
In compliance with the SEC ruling, Kraken announced it will be unstaking all its U.S. client’s assets from the on-chain staking program. The exchange also said it would halt all staking rewards immediately.
Kraken, however, will not be unstaking U.S. customers’ staked ETH due to the nature of the program. The company confirmed it will be unstaking all locked ETH after the Shanghai upgrade. The Shanghai upgrade is expected to happen by March, according to Ethereum’s “The Merge” roadmap.
SEC Continues Hunt for Erring Crypto Exchanges
SEC has continued its crackdown on erring crypto exchanges. The U.S. regulator has been on high alert since the FTX collapse and has relentlessly ensured that a repeat of the ugly event does not occur.
The SEC Chair, Gary Gensler, speaking on the Kraken issue, said, “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investor’s token, need to provide the proper disclosures and safeguards required by our securities laws.”
Gensler stated that the action taken by the SEC would clarify that staking program providers must register with the regulator. Staking service providers are also mandated to provide full and trustful disclosures for investor protection.
The suspension of Kraken’s crypto staking comes just hours after Coinbase CEO Brian Armstrong revealed that the SEC planned to prohibit retail staking. Armstrong stated that the ban would be a terrible path for innovation in the United States.
Kraken is not the first exchange to face the U.S. regulator’s wrath. In January, the SEC charged Genesis and Gemini for violating securities laws. Nexo also agreed to pay $45 million for running unregistered securities.
Commissioner Peirce Condemns SEC’s Crypto Crack Down
SEC Commissioner Hester Peirce has publicly condemned the move by her agency on crypto regulation. She called the steps by Gensler and the SEC “hostile.” Peirce also stated that regulation by enforcement would not work on a developing industry like crypto.
Peirce asserted that Kraken might still not be registered if they moved for it, stating that many crypto-related offerings are not “making it through the SEC’s pipeline.” She noted that there was a better way to handle the Kraken’s shutdown than closing a program that has served the public well.
