Kraken ends staking program, pays $30 million to settle unregistered staking services case with SEC

Kraken, a U.S.-based crypto-currency exchange, has agreed to end its crypto-currency staking program as part of a settlement with the U.S. Securities and Exchange Commission (SEC) to resolve the unregistered offer of its staking services. The exchange will also pay $30 million in disgorgement, prejudgment interest and civil penalties, as outlined by the regulator.

Kraken to pay $30 million for failing to register its staking services

Kraken, the largest U.S.-based crypto-currency exchange, has agreed to pay $30 million in restitution, prejudgment interest and civil penalties to the U.S. Securities and Exchanges Commission (SEC) as part of a settlement for the unregistered offering of staking services. The settlement, which was made public on February 9, 2023, also includes the termination of the staking program that Kraken had been offering to its customers since 2019.

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SEC Chairman Gary Gensler explained that virtual asset service providers must be compliant when offering these investment tools to their clients. Gensler said:

Whether through staking-as-a-service, loans or other means, crypto intermediaries, when offering investment contracts in exchange for investor tokens, must provide the appropriate disclosures and safeguards required by our securities laws.

In addition, Gensler said that the SEC’s action means that any staking as a service provider must now “Register and provide full, fair and truthful disclosure and investor protection“. Gurbir S. Grewal, director of the SEC’s Division of Enforcement, also criticized the action of Kraken’s staking program, saying it gave no indication of the company’s ability to pay marketed returns.

The ruling in this case also implies that all crypto funds staked by customers will be automatically unstaked, with the exception of ether, which will have to wait for the Shanghai update. Staking rewards will be awarded on a pro-rata basis for February 9, as the exchange in a press release.

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The future of staking

The settlement comes after Brian Armstrong, CEO of Coinbase, expressed concern on February 8 about rumors that the SEC was looking to ban crypto-currency staking for retail customers. Brian Armstrong clarified that he did not see staking as a security, and that the measure “would be a terrible path for the United States if it were allowed.”

Coinbase, another U.S. exchange, also offers crypto-currency staking options for at least six different crypto-currency networks, including Algorand, Cosmos, Ethereum, Tezos, Cardano and Solana.

Kraken also said that while its staking offering will end in the U.S., the company will continue to provide staking services to its customers outside the country through another subsidiary.

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