Kraken will never be able to offer a staking service again in the U.S. — but Hester Peirce has accused the regulator she works for of being "lazy and paternalistic."
Kraken has reached a speedy settlement with the U.S. Securities and Exchange Commission — and will pay a $30 million penalty.
The exchange was charged with failing to register its staking-as-a-service program, which allowed customers to earn up to 21% in interest on their crypto.
As a result of the settlement, Kraken has agreed to immediately terminate this service.
According to the SEC, staking means consumers "lose control of tokens and take on risks associated with those platforms, with very little protection."
Following the settlement, SEC chairman Gary Gensler said:
"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."
Meanwhile, the SEC's director of enforcement — Gurbir Grewal — warned businesses that offer crypto investments outside of the protections provided by federal securities laws harm investors, because they don't end up receiving the disclosures they deserve. He added:
"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 SEC has long held that nearly all cryptocurrencies except Bitcoin are securities that must be registered with the agency and sold by registered broker-dealers.
Gensler recently shocked the industry by implying that when Ethereum moved from Proof-of-Work to Proof-of-Stake, Ether may have become a security.
Growing Pressure
The settlement comes days after Coinbase's CEO, Brian Armstrong, revealed that he's "hearing rumors" that the SEC may move to ban staking in the U.S. altogether.
He warned America would be on a "terrible path" if this happened — and insisted that staking is not a security.
Describing this approach as "a really important innovation in crypto," he tweeted:
"It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints."
Armstrong also expressed fears that a clampdown would prevent new technology from flourishing in the U.S. — and simply push this activity offshore. Given what happened with FTX, which was ultimately based in The Bahamas, the CEO suggested American investors could still end up being harmed.
Not everyone within the SEC agrees with the decision to punish Kraken in this way — including Hester Peirce, who is affectionately known as "Crypto Mom" within the space.
The commissioner announced she disagreed and dissented with the settlement, and questioned whether Kraken would have even been able to register with the SEC. She wrote:
"We have known about crypto staking programs for a long time. Although it may not have made a difference, I should have called for us to put out guidance on staking long before now. Instead of taking the path of thinking through staking programs and issuing guidance, we again chose to speak through an enforcement action."
Peirce also argued that Kraken's service "has served people well" — and now, its program will never be available again in the U.S.
"A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down."
