{"id":479953,"date":"2023-02-12T07:14:52","date_gmt":"2023-02-12T05:14:52","guid":{"rendered":"https:\/\/mybroadband.co.za\/news\/?p=479953"},"modified":"2023-02-12T07:16:13","modified_gmt":"2023-02-12T05:16:13","slug":"us-considers-crackdown-on-crypto-staking","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/cryptocurrency\/479953-us-considers-crackdown-on-crypto-staking.html","title":{"rendered":"US considers crackdown on crypto staking"},"content":{"rendered":"

A lucrative corner of crypto that\u2019s fast becoming the lifeblood of the way many networks operate got a shock to the system this week.<\/p>\n

The US Securities and Exchange Commission on Thursday\u00a0signaled a crackdown\u00a0on platforms offering rewards to their customers via a process called staking, as it reached a settlement with trading platform Kraken for $30 million and won agreement from the exchange to shut down those offerings domestically.<\/p>\n

It\u2019s possible other providers such as larger rival exchange Coinbase Global Inc. may feel the heat and follow suit in discontinuing their own staking services, experts said \u2014 or move them offshore.<\/p>\n

Staking allows users to lock up their coins on blockchains and help order the transactions that keep the protocols running, earning yields in return at an average of 7.7%, according to an estimate by data provider Staking Rewards based on 176 tracked assets.<\/p>\n

The \u201cproof-of-stake\u201d method for running a network became a popular choice for developers in recent years, because it uses much less energy than so-called proof-of-work chains like Bitcoin and potentially allows more people to share in the rewards.<\/p>\n

Networks including Ethereum, Solana, Tezos, Cosmos and Polygon all rely on some version of staking to operate their chains, with Staking Rewards putting the global value of all staked assets at $91.8 billion as of Friday.<\/p>\n

\"highs<\/a><\/p>\n

Large exchanges like Kraken, Coinbase and Binance are at the heart of the staking-as-a-service industry, taking on the significant upfront cost and technical know-how for customers in return for a fee. Coinbase, one of the\u00a0biggest providers<\/a>\u00a0of staking-as-a-service at $3.3 billion in value locked, was previously forecast to be in line for around $450 million in related revenue this year.<\/p>\n

The enforcement action against Kraken \u201cmay cause all retail-focused and US-based staking-as-a-service businesses to shut down their operations,\u201d Christine Kim, research associate at Galaxy Digital, wrote in a note Friday, adding that Kraken and Coinbase account for nearly 20% of all staking on Ethereum combined.<\/p>\n

\u201cIf the recent enforcement action by the SEC is, as it appears, targeted against all staking-as-a-service businesses in the US, this will have wide-reaching impacts\u201d on proof-of-stake blockchains, she said.<\/p>\n

Network growth<\/h3>\n

While Ethereum is the most well-known proof-of-stake network, it\u2019s the smaller blockchains like Solana that may be hit the hardest by a sudden exit of big centralized exchanges from the US market.<\/p>\n

Staking is what makes these networks run smoothly, facilitating millions of transactions and also helping to improve security.<\/p>\n

The price of SOL, Solana\u2019s native token, fell as much as 9.15% on Thursday following the SEC\u2019s announcement.<\/p>\n

There are other staking providers \u2014 \u00a0less centralized services that claim to avoid concentrating oversight under a specific group, person or exchange \u2014 but their interfaces aren\u2019t user-friendly enough for many everyday investors.<\/p>\n

\u201cIf US crypto exchanges are not able to do custodial staking, we might see much more trend towards decentralization and self-custody,\u201d added Lex Sokolin, chief crypto economist at Consensys.<\/p>\n

\u201cHowever, that will also make it more difficult for very small accounts to participate in the security of networks, which is something we want.\u201d<\/p>\n

Such platforms would need to rapidly improve their onboarding processes in order to keep up without a Coinbase or Kraken around, said Conor Ryder, an analyst at blockchain analytics firm Kaiko.<\/p>\n

Exchanges<\/h3>\n

There is a question of whether the SEC will target other exchanges like Coinbase that offer staking to customers. Eagle-eyed analysts, lawyers and policy experts pored over SEC Chair Gary Gensler\u2019s Thursday announcements, and largely came to the conclusion that it\u2019s more a matter of how Kraken marketed its staking than the practice itself that is at issue.<\/p>\n

Specifically, the SEC\u00a0alleged<\/a>\u00a0that Kraken\u2019s terms of service transferred complete control of all staked tokens to the exchange and allowed it to \u201cdetermine these returns, not the underlying blockchain protocols\u201d at its sole discretion.<\/p>\n

It also didn\u2019t allow customers to have any insight into its overall financial health, which would help them make informed decisions about how likely it was that Kraken would pay the market-beating returns it advertised.<\/p>\n

As a publicly traded company, Coinbase provides such financial disclosures on a quarterly basis, Paul Grewal, its chief legal officer, said in a\u00a0series of tweets<\/a>\u00a0on Thursday. \u201cWe don\u2019t play games,\u201d he said. \u201cOur customers have a right to their rewards. We can\u2019t just decide not to pay any rewards at all.\u201d<\/p>\n

Galaxy Digital\u2019s Alex Thorn, however, doesn\u2019t see it the same way. \u201cWhile Coinbase\u2019s CLO refers to some of the specifics of Kraken\u2019s program and argues that it\u2019s those specifics that made Kraken\u2019s product a security and not Coinbase\u2019s, it appears both from the complaint and the press release that the SEC isn\u2019t making such a distinction,\u201d Thorn said.<\/p>\n

\n

I honestly hope that somebody proves, in court, that there is a legal, user-friendly version of custodial staking that can be offered to US consumers. It\u2019ll be a brutal, lengthy, expensive fight and a massive distraction but the industry and the USA will be extremely grateful. https:\/\/t.co\/lhZPxykznD<\/a><\/p>\n

\u2014 Jesse Powell (@jespow) February 9, 2023<\/a><\/p><\/blockquote>\n