Kraken, a cryptocurrency exchange, agreed with the Securities and Exchange Commission (SEC) on Thursday to stop its crypto-asset staking and to pay a fine of $30 million.
According to the SEC, Kraken has been offering its staking as a service without notifying them. This had been going on since 2019. Accordant to the complaint investors have invested over $2.7 billion in cryptocurrency in Kraken and Kraken has earned approximately $147 million net revenue.
By staking, cryptocurrency holders earn rewards for locking their assets up to help support a blockchain. Holders earn cryptocurrency in exchange for locking up their crypto assets. Kraken’s rewards program, which is available on the website of the company, offers up to 20 percent annual returns for staked investments.
SEC claims that users who stake crypto tokens also take additional risks by locking them on another platform. According to the regulator, clients are “losing control” of their tokens and that this provides “very little protection.”
“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 Chair Gary Gensler.
Payward Ventures Inc. (Kraken subsidiary) and Payward Trading Ltd. (Kraken parent company), which comprise the firm, will cease staking service for U.S. clients as part of this settlement.
Kraken said to a blog post This means that all assets in the affected program will be automatically unstaked and no more rewards for staking can be earned. All assets are affected, with the exception of staked Ether. Ether can only be unstaked after the Shanghai update to the Ethereum Blockchain.
Kraken’s clients outside the United States will continue to have access to staking as a service through an independent Kraken subsidiary. They can still receive their rewards, bets and unbets in the same way.
Coinbase Inc. offers crypto-staking services for customers. The SEC has also been scrutinizing its business practices. The company offers a similar program which promises up to 6 percent annual returns.
Brain Armstrong, the CEO of Coinbase before the SEC announced the settlement, said that rumor had it the regulator would “abolish staking” for U.S. retailers. The CEO said that if this were to occur, it would be “terrible.”
He wrote: “Staking represents a major innovation in the crypto world.” The users can participate directly in open crypto networks. The space is improved by staking, which brings scalability to crypto, as well increased security and reduced carbon emissions.