PYMNTS-MonitorEdge-May-2024

Kraken Ends US Crypto Staking After $30M Settlement With SEC

Kraken is ending its cryptocurrency staking service for U.S. users as part of a settlement.

The settlement with the Securities and Exchange Commission (SEC), which included $30 million in penalties and other costs, came after the SEC charged Kraken with failing to register the offer and sale of this program, the SEC said in a Thursday (Feb. 9) press release.

“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 the release.

Staking is a way of earning passive income on crypto holdings. While it’s generally safer and easier than yield farming, it has risks that include the volatility around anything related to crypto as well as the fact that many staking pools require investors to lock up their cryptocurrency for a set period — magnifying the risks of volatility.

Gensler said in September that staking could turn crypto into securities because it becomes very similar to lending — and the SEC has said that firms that offer crypto-lending products must register with the agency.

The SEC said in release that in Kraken’s staking service, the firm advertised annual returns of as much as 21% and staked assets on behalf of investors but offered them no information about whether it would be able to pay those returns.

“In case after case, we’ve seen the consequences when individuals and businesses tout and offer crypto investments outside of the protections provided by the federal securities laws: Investors lack the disclosures they deserve and are harmed when they don’t receive them,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the release.

Kraken agreed to the settlement without admitting or denying the allegations, according to the release.

In a Thursday blog post, Kraken said it would immediately unstake all assets of U.S. clients enrolled in the program — other than staked ether, which will be unstaked after an upgrade — and prevent U.S. clients from staking any additional assets.

The firm said it will continue to offer staking services for non-U.S. clients through a subsidiary.

“Staking services for non-U.S. clients will continue uninterrupted,” Kraken said in the post. “Non-U.S. clients can continue to stake and unstake assets, as well as automatically earn and stake rewards, as usual.”

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PYMNTS-MonitorEdge-May-2024