According to recent reports, the American trading platform for digital currencies, Kraken, is getting ready to reach a settlement agreement with the United States SEC over allegations that it provided unregistered Staking-as-a-Service products to customers in the United States.
According to a report by The Block, a Kraken spokesman acknowledged the exchange's intentions, and the company stated that it would neither accept nor refute the charges made by the regulator.
Kraken has agreed to pay a fine of $30 million and stop providing its crypto currency staking service to customers in the United States as part of the conditions of the settlement the company has reached.
Gary Gensler, the chai of SEC, has been an outspoken opponent of staking to make financial gains. He first brought attention to the immobilization of Ethereum (ETH) at a point in time during the protracted transitional phase from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
In Gensler's opinion, confirmation of the Howey Test for securities is achieved when investors commit their capital to a venture in the hope of making a profit as a result of the efforts of others.
"Whether through staking-as-a-service, loaning, or any other means, crypto middlemen must provide the proper disclosures and protections needed by our securities act when providing investment contracts in return for investors' tokens," said Gary Gensler, the chair of the SEC.
"The action taken today should make it abundantly obvious to the market that providers of staking-as-a-service are required to register and offer complete, fair, and accurate disclosure in addition to investor protection."
In light of recent events, the SEC will likely focus on Kraken as the next high-profile crypto currency business to come under scrutiny. The regulator has been engaged in a legal dispute with Ripple Labs Inc., a blockchain payments company, regarding the latter's sale of unlicensed XRP tokens, which the agency considers securities.
Ripple has put up a very solid fight against the SEC, and the dispute will be resolved in the next several weeks at the latest.
SEC Acting in Retaliation?
A significant amount of pushback from crypto currency community members has been generated in response to the SEC's decision to penalize Kraken for the provision of staking services.
Although the most significant worry is that actions taken by the SEC will only encourage innovators and entrepreneurs to move their businesses to other countries, many people are also concerned about the lag that the United States economy will experience due to a downturn in financial innovation.
Hester Peirce, also known as Crypto Mom, is a Commissioner at the Securities and Exchange Commission (SEC) and one of the agency's most vocal critics.
She stated (1) in a released statement that "a paternalistic and lazy regulatory decides on a fix like the one found in this settlement," stressing that regulating by compliance is neither practical nor fair.
She was referring to the settlement. It is possible that increased openness about crypto-staking schemes like Kraken's would be a positive development.
However, it could be clearer if we need a standard regulatory answer and whether or not a regulator best gives a regulatory solution as opposed to crypto currency in the form of an enforcement action.
It is unknown at this time whether other enforcement proceedings will also be taken against other crypto currency-related businesses in the United States, such as Coinbase Global Inc.