The SEC (US Securities and Exchange Commission) has fined cryptocurrency exchange Kraken for two counts related to its staking products. The exchange agreed to the allegations and paid a $30 million fine.
The US regulatory body has emphasized the need to protect retail investors from staking activity, a process by which cryptocurrencies are held in a wallet and rewarded with new cryptocurrencies.
A spokesperson for Kraken told Blockworks it has agreed to end its US-only staking services. Similar, assets enrolled in the program are automatically revoked and no longer give rewards. In addition, US customers cannot stake any assets, including Ethereum.
Meanwhile, Kraken is facing several legal issues with US authorities, with rumors that the company is failing to comply with a subpoena from the Internal Revenue Service (IRS), which seeks information about customer identities and transactions.
In response, the US government has filed a petition against the brokerage to make it comply with the 2021 order.
SEC vs Kraken
To justify the action, the SEC has sued two Kraken entities for failing to register cryptocurrency staking products as securities. Payward Ventures Inc. and Payward Trading Ltd. reportedly offered yields of up to 21% on their products.
SEC Chairman Gary Gensler stressed in a recent statement that companies offering staking services must register and protect investors with full and truthful disclosure.
The SEC also stated that the Kraken Staking program was offered and sold as an investment contract and was therefore subject to the registration requirements of the federal securities law.
With reduced trading volumes, centralized exchanges, including Kraken and Coinbase, began offering staking services to boost their earnings, but the US regulator was not taking kindly to this.
The decision was revealed a day after Coinbase CEO Brian Armstrong noted that he had received information that the SEC could ban retail customers from using the staking feature.
The SEC did not respond to any paper, but acted immediately by announcing Kraken’s fine, casting doubt on the staking services offered by Coinbase and other exchanges operating in the United States.
The agency further alleged that participants lose control of their assets and take risks “with very little protection” when using Kraken’s service, stating that the exchange determines user rewards differently than the underlying blockchain mechanism – and as a result does not adequately disclose to users how it determines rewards.
As a result of the news, cryptocurrencies faced a decline this Thursday afternoon (9), with Ethereum, which has a wagering mechanism, dropping nearly 6% in a matter of minutes.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
