Kraken To Immediately Stop On Chain Staking Services For US Clients, Pays $30 million In Settlement With SEC
Staking services for non-U.S. clients will continue uninterrupted. Non-U.S. clients can continue to stake and unstake assets, as well as automatically earn and stake rewards, as usual.
February 09, 2023 - Kraken, one of the world's largest crypto exchanges, has been forced to immediately stop its 'Staking-as-a-Service' platform for US customers and must pay a $30 million settlement with the SEC, it was announced today.
Kraken themselves confirmed this in a blog post today, "Starting today, Kraken will automatically unstake all U.S. client assets enrolled in the on-chain staking program. These assets will no longer earn staking rewards. This applies to all staked assets except for staked ether (ETH), which will be unstaked after the Shanghai upgrade. U.S. clients will not be able to stake any additional assets, including ETH."
However, kraken will continue to offer staking services for non-US clients through a 'separate Kraken subsidiary' (but did not name the subsidiary in the blog post).
Kraken will return previously staked non-ETH assets and returned to the client's spot wallet and will no longer earn rewards.
"Staking services for non-U.S. clients will continue uninterrupted. Non-U.S. clients can continue to stake and unstake assets, as well as automatically earn and stake rewards, as usual."
The heart of the SEC's complaint centres around "proper disclosures" (or lack thereof) and "investor protection". The SEC Chair Gary Gensler stated that, “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws...Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, also stated, “In case after case, we’ve seen the consequences when individuals and businesses tout and offer crypto investments outside of the protections provided by the federal securities laws: investors lack the disclosures they deserve and are harmed when they don’t receive them. Today, we take another step in protecting retail investors by shutting down this unregistered crypto staking program, through which Kraken not only offered investors outsized returns untethered to any economic realities, but also retained the right to pay them no returns at all. All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”
The full SEC announcement can be viewed here.
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