CoinMash - In another move by the US Securities and Exchange Commission, cryptocurrency exchange Kraken on Thursday agreed to pay a settlement amount of $30 million and shut down its ‘staking service’ over allegations that it violated the agency’s regulations.
The impact of the move is far-reaching. Jesse Powell, the founder and former CEO of the exchange, tweeted a video featuring SEC chair Gary Gensler, who stated on CNBC that to be deemed compliant, those providing staking rewards must have complete, fair, and truthful disclosure.
Oh man, all I had to do was fill out a form on a website and tell people that staking rewards come from staking? Wish I'd seen this video before paying a $30m fine and agreeing to permanently shut down the service in the US. How dumb do I look. Gosh. https://t.co/UPdQdnI6xN— Jesse Powell (@jespow) February 10, 2023
COIN price takes a tumble
Following the news, the share price of the largest crypto exchange in the U.S., Coinbase (NASDAQ:COIN), which offers its own staking services, fell around 14% on Thursday on rumors that the SEC might disallow crypto staking for retail customers.
However, Coinbase representatives have come out defending their crypto-staking service, arguing that it cannot be considered a security.
Coinbase vs. SEC
“Staking is not a security under the US Securities Act, nor under the Howey test, which the SEC uses to determine whether an investment contract is a security. The Howey test comes from a 1946 Supreme Court case – and there is a separate discussion to be had about whether that test makes sense for modern assets like crypto,” wrote the company in a blog post.
Paul Grewal, Coinbase’s chief legal officer, argued that staking does not fulfill the four criteria of the Howey test: investment of money, common enterprise, reasonable expectation of profits, and the efforts of others.
CEO of Coinbase, Brain Armstrong, tweeted that the company is even ready to defend its position in court if needed.
Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3— Brian Armstrong (@brian_armstrong) February 12, 2023
The SEC believes users are allowed to stake their coins without having to purchase or manage the computing equipment necessary for staking. This is similar to crypto lending, where providers would offer crypto depositors high-interest rates for lending out their coins.
As things stand, Coinbase and its peers have to deal with the scathing attack of the SEC and be on the lookout for products that the agency might target next.
This article was originally published by our partners at Coinmash
