The regulatory gaze deepens in the crypto sphere, and while the headlines seem focused on cryptocurrencies, the reverberations will be felt with stablecoins too.
Much may be at stake with staking.
As reported Tuesday (June 6), and as noted here, the Securities and Exchange Commission (SEC) filed 13 charges Monday (June 5) against the world’s largest crypto exchange, Binance, and its founder, Changpeng Zhao, alleging a variety of securities law violations.
In the announcement, the SEC also said that it has charged Coinbase with “failing to register the offer and sale of its crypto asset staking-as-a-service program.” In the statement, the SEC alleged that, for the past roughly four years, “Coinbase has been engaging in an unregistered securities offering through its staking-as-a-service program, which allows customers to earn profits from the ‘proof of stake’ mechanisms of certain blockchains and Coinbase’s efforts.” Members of the pooled stakeable crypto assets get rewards generated from the program.
There’s precedent to pressures continuing to come to bear on staking. Earlier this year, Kraken ended its staking service as part of a $30 million settlement with the SEC.
Generally speaking, staking’s a way for holders to earn passive income on their crypto, while the platforms and staking services validate the technologies themselves.
For stablecoins, we note that there’s a bit of difference when it comes to staking. While the general crypto-focused staking is geared toward proof of concept, stablecoin staking is geared towards yield. The coins are held on a platform and are used in lending activities. In this way, there’s some approximation of traditional financial services activities.
As of this writing, and as disclosed on sites such as Bitcompare.com, staking “rewards” for, say Tether, represent a yield of up to 3%, USDD of up to 8%.
But the Coinbase/Binance news might send reverberations through the stablecoin market. These two exchanges offer stablecoin staking. And staking, in general, can be big business for the platforms. As reported in Coinbase’s latest 10-K, blockchain rewards, which includes staking activity, was $275 million worth of revenue, up more than $52 million from 2021. The latest tally represented a bit more than 8% of total revenues for the year.
The SEC’s complaint against Binance is telling. The SEC said Binance had engaged in the “unregistered offer and sale of Binance’s own crypto assets, including a so-called exchange token, BNB, a so-called stablecoin, Binance USD (BUSD), certain crypto-lending products, and a staking-as-a-service program.”
If there’s a seismic shift in staking — if platforms abandon the practice on their own or might be forced to — the impact may be significant.
The site Staking Rewards shows that the staking “market cap” of USDC is about $1.3 billion, where the total market cap of that stablecoin stands at about $28 billion. Tether’s staking market cap stands at about $915 million; the total market cap of the token out in the field is more than $83 billion.
Other coins such as USDD have significant staking “ratios” of 42% of market cap.
Might it be the case that if staking as a model is threatened, then many of these stablecoins may see downward pressure on their prices, and might even threaten the fiat “peg” in place or break the proverbial buck? The stablecoin market has been shrinking for more than a year, and estimates have the market overall at $128 billion, so this week’s news, and uncertainty on staking, may be unwelcome.
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