Feb 11, 2023

Crypto Community Outraged Over SEC’s Kraken Charges

Cryptocurrency enthusiasts have been up in arms over the recent charges brought against the popular crypto exchange Kraken by the United States Securities Exchange Commission (SEC). On February 9th, the SEC declared that Kraken had failed to register the sale of their crypto asset staking-as-a-service program, which the SEC claims is a security under their purview.

Kraken has agreed to pay a $30 million fine and will immediately cease offering staking services to U.S. retail investors, though they will continue to be available offshore.

The news has been met with a great deal of criticism from the crypto community, investors, politicians and industry executives. Adam Cochran, a partner at Cinneamhain Ventures and Ethereum bull, called out SEC chief Gary Gensler, describing him as “an agent of an anti-crypto agenda” instead of a regulator, and questioning why the same standards weren’t applied to Sam Bankman-Fried and FTX.

Kristin Smith, the CEO of the Blockchain Association, argued in a statement that this situation is a perfect example of why Congress needs to be working with industry players to create appropriate legislation, rather than leaving it up to the SEC. U.S. Congressman Tom Emmer echoed this sentiment, pointing out that staking services will be an important part of “building the next generation of the internet” and that the “purgatory strategy” of the SEC will hurt everyday Americans the most, as they may soon be forced to seek out such services offshore.

Ryan Sean Adams, the 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.

Michael Saylor, a prominent Bitcoin bull, agreed with Gensler’s assessment that retail investors “lose control” of their tokens when they’re delegated to external staking service providers. However, Jake Chervinsky, the attorney and chief policy officer of the Blockchain Association, pointed out 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 decision to enforce action against staking service providers has prompted 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.

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