Feb 10, 2023

Crypto Community Outraged Over SEC’s Kraken Charges

The crypto community is up in arms over the recent charges laid against the crypto exchange Kraken in connection with its staking-as-a-service program in the United States. On Feb. 9, the United States Securities Exchange Commission (SEC) announced it had settled charges with Kraken over “failing to register the offer and sale of their crypto asset staking-as-a-service program,” claiming that it is qualified as securities under its purview.

Kraken has agreed to settle the charges by paying $30 million in fines and ceasing the offering of staking services to U.S. retail investors, though they will still be available offshore. This has sparked outrage among investors, politicians, industry executives, and the crypto community at large.

Adam Cochran, partner at Cinneamhain Ventures and Ethereum bull, called out SEC chief Gary Gensler, describing him as “an agent of an anti-crypto agenda” rather than a regulator, and wondering why the same standards weren’t applied to Sam Bankman-Fried and FTX.

Kristin Smith, CEO of the Blockchain Association, believes that this is a textbook example of why Congress — not the SEC — should work with industry players to create suitable legislation. U.S. Congressman Tom Emmer also highlighted the importance of staking in the crypto ecosystem, claiming that the “purgatory strategy” will hurt “everyday Americans the most,” as they will be forced to seek such services offshore.

Ryan Sean Adams, founder of the Ethereum show Bankless, suggested that the SEC could have taken other measures rather than charging Kraken out of the blue, such as mandating proof-of-reserves, requiring staking transparency, and supporting decentralized staking.

On the other hand, Bitcoin bull Michael Saylor agreed with Gensler’s analysis that retail investors “lose control” of their tokens when they’re delegated to external staking service providers. Attorney and chief policy officer of the Blockchain Association, Jake Chervinsky, noted that such “settlements are not law” and that Kraken’s decision to settle was likely an economic decision rather than a legal one.

The SEC’s charge towards enforcing action against staking service providers has caused Coinbase CEO Brian Armstrong to say that “regulation by enforcement” would be a “terrible path” for U.S. innovators, as they’ll be forced to push more of their services offshore.

The debate comes as the crypto space is seeing a surge in non-fungible token (NFT) promotion and marketing, with many companies turning to Twitter NFT marketing and even hiring NFT marketing agencies to help them sell their NFTs. Web3 agencies are also popping up to help businesses navigate the complex web3 space and ensure they are compliant with all relevant regulations. It remains to be seen whether or not the SEC will take action against these businesses and how it will affect the crypto markets in the long run.

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