In her Thursday statement, Hester Peirce publicly voiced her disagreement with what she considered “not an efficient or fair way of regulating.” According to the Commissioner, aggressive enforcement in the absence of clear regulation is harming both investors and the emerging industry.
Peirce’s dissent comes as SEC hits Kraken with a $30 million fine and forces the crypto exchange to shut down its staking service for US customers. The regulator’s complaint alleged that Kraken’s staking-as-a-service offering amounted to the sale of a security that should have been registered with the agency.
“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,” SEC Chair Gary Gensler said in a press release. “Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”
With blockchains that use proof-of-stake consensus, staking means locking some crypto assets to earn rewards for securing the network. To start staking cryptocurrency independently, a user would have to set up a validator node and pledge at least a minimum amount needed. Ethereum, for example, requires a minimum of 32 ETH, or $49,000 at the time of writing, and in most cases, solo staking is quite a costly venture.
However, with staking-as-a-service platforms, holders can pledge any amount of cryptocurrency and earn proportionate rewards from network fees, minus commission for the intermediary. Currently, all major exchanges, including Coinbase, Binance, Gemini, and KuCoin, offer numerous staking options for users, so Kraken’s settlement with SEC has crypto investors worldwide worried about the effects for PoS cryptocurrencies.
It’s unclear whether a regulatory crackdown on Kraken staking will affect similar offerings from other centralized exchanges, as these platforms are not uniform, and therefore, as Peirce has pointed out, “one-off enforcement actions and cookie-cutter analysis does not cut it.”
“Most concerning, though, is that our solution to a failure to register violation is to shut down entirely a program that has served people well,” the Commissioner wrote. “However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.”
Hours before SEC announced its action against Kraken, Coinbase CEO Brian Armstrong shared a rumor on Twitter about SEC’s planned crackdown on crypto staking.
“Regulation by enforcement doesn’t work. It encourages companies to operate offshore, which is what happened with FTX,” the CEO tweeted. “Hopefully we can work together to publish clear rules for the industry, and come up with sensible solutions that protect consumers while preserving innovation and national security interests in the U.S.”
Over his term as SEC Chairman, Gary Gensler has argued that many crypto assets fall under Howey’s Test definition of securities, and therefore must be registered with the agency. In 2023, the regulator has already charged Gemini and Genesis with a sale of unregistered securities