Cryptocurrency exchange Kraken will "immediately" terminate its cryptocurrency staking-as-a-service platform for U.S. customers and pay $30 million to settle SEC charges that it offered unregistered securities, U.S. agencies announced Thursday.
Payward Ventures, Inc. and Payward Trading Ltd., the registered companies that make up Kraken, will terminate the staking service and program, the SEC said. These programs have offered staking services to the public since at least 2019.
“The complaint alleges that Kraken asserted that its staking investment program provided an easy-to-use platform and benefited from Kraken’s efforts on behalf of investors, including Kraken’s strategy of earning regular investment returns and payouts,” the SEC release said. say.
In a blog post, Kraken said it will automatically unstake any assets staked by U.S. customers, with the exception of staked ether, which will not be unstaked until the ethereum network’s Shanghai upgrade goes live. U.S. customers will also not be able to stake new assets, including ether. Non-US customers are not affected.
The SEC filed the lawsuit in federal court on Thursday.
While Kraken’s website offers a 20% yield for its staking service, the SEC press release suggests it could be as high as 21%.
The SEC’s description of Kraken’s staking setup highlights the “risk” investors take when staking their tokens with a “staking-as-a-service” provider, which offers them “very little protection,” according to a press release. Staking is the process by which a proof-of-stake blockchain network, such as Ethereum, maintains its security. The network’s decentralized validators issue cryptocurrencies as a form of collateral to prove they will remain honest. In return for processing transactions, they are rewarded with more tokens. Many cryptocurrency stakeholders lend their tokens to service providers who run nodes and share in the rewards.
Coinbase (COIN) also offers staking services for its customers, as do a range of decentralized protocols including Lido. “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” said SEC Chairman Gary R. measures.” Gensler. "Today's action should signal to the market that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection."
