Feb 10, 2023

SEC Commissioner Blasts Agency Over Kraken Shutdown

The United States Securities and Exchange Commission (SEC) has come under fire from its own Commissioner, Hester Pierce, after it shut down the crypto staking program of the popular exchange Kraken.

Commissioner Pierce, who is often referred to as the ‘Crypto Mom’, blasted the SEC in a statement titled ‘Kraken Down’, arguing that the agency’s regulation by enforcement is not an appropriate way to regulate an emerging industry. She wrote:

“Today, the SEC shut down Kraken’s staking program and counted it as a win for investors. I disagree and therefore dissent.”

Pierce criticized the SEC for shutting down a service that was working well for its users, and suggested that the agency should have initiated a public process to develop a workable registration process that provides valuable information to investors.

Brian Armstrong, the CEO and co-founder of Coinbase, agreed with Pierce’s comments and indicated that the SEC’s offer to register the staking services was disingenuous as there is no clear path to registration.

The SEC announced on Feb. 9 that it had reached a $30 million settlement with Kraken for failing to register its crypto asset staking-as-a-service program. Kraken said in a blog post that it would still offer staking services to non-U.S. customers through a subsidiary, but according to the SEC announcement, the firm is permanently banned from providing staking services to U.S. residents, even if they sought to register it with the regulator.

Pierce, who has been a strong advocate for the crypto industry during her time at the regulator, proposed a ‘safe harbor’ for token projects which are looking to build decentralized networks. Under her proposal, network developers would receive a three-year grace period where they were exempt from SEC legal action.

The SEC’s decision to shut down Kraken’s staking program has highlighted the need for more clarity on the agency’s stance on crypto-related activities. The agency should work with the industry to develop a more comprehensive set of regulations that will enable companies to offer services such as staking, NFT promotion, NFT marketing, and other web3 services in a safe and compliant manner.

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