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Kraken will stop offering US crypto 'staking' and pay a $30 million penalty after settling with the SEC

George Glover   

Kraken will stop offering US crypto 'staking' and pay a $30 million penalty after settling with the SEC
  • Kraken has agreed to end its "staking" program in the US and pay $30 million to settle a probe by the SEC.
  • The crypto exchange's service offered its customers returns if they put up their tokens for staking.

Kraken has agreed to stop offering crypto "staking" services to US customers and pay $30 million as part of a settlement with regulators over charges it failed to register the yield-bearing program.

That meant the major crypto exchange didn't have the proper protections in place for those investors while allowing them to stake their crypto, the Securities and Exchange Commission said in a statement Thursday.

The SEC move marked its first big crackdown on staking, drawing pushback from the crypto industry and concerns more enforcement could lie ahead.

"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.

"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," he added.

Staking is when investors agree to lock in their holdings of a digital asset like ethereum, cardano or solana to be deployed on the blockchain, in exchange for a percentage-based reward. The SEC said Kraken offered returns of as much as 21%.

Kraken will pay $30 million under the SEC settlement to cover civil penalties, pre judgement interest and disgorgement, which is the money the regulator says it made via the improper conduct.

Crypto leaders reacted strongly to the markets watchdog's latest move, which could be another setback for the industry after several high-profile players imploded in a hellish 2022.

"The SEC continues its attack on U.S. crypto companies and retail investors, regulating by enforcement and undercutting the potential of public blockchain networks in the United States," Kristin Smith, Blockchain Association CEO, said in a statement.

"Today's settlement isn't law, but is another example of why we need Congress – not regulators – to determine appropriate legislation for this new technology."

The SEC only has jurisdiction over US markets, so international Kraken customers will still be able to stake their crypto.

The digital asset space is still reeling from the collapse of Kraken's old rival FTX, which filed for bankruptcy in November after suffering a liquidity crisis.

Its founder Sam Bankman-Fried was arrested in the Bahamas and extradited to the US the following month. The SEC charged him with defrauding investors out of at least $1.8 billion.

Bitcoin fell 3.7% in the past 24 hours to trade below $22,000 Friday, according to CoinMarketCap data, after the news of Kraken's settlement. Meanwhile, ethereum dropped 5.2% to hover above $1,500.

Editor's note: February 10, 2023 — Kraken will stop offering its staking program to US customers, not all customers as suggested by an earlier version of this story.

Read more: Coinbase CEO points to rumors that the SEC could ban this popular crypto income-generating technique for US retail investors

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