With The Settlement Of $30 Million With The SEC, Kraken Winds Down Its U.S. Staking Operations

A securities regulator on Thursday said it had settled an enforcement action alleging that Kraken had sold unregistered securities and had shut down its U.S. cryptocurrency staking operation. As part of the enforcement action, Kraken will pay a $30 million fine.

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There has been a complaint filed by the Securities and Exchange Commission alleging Kraken did not register its offer and sale of Staking as a Service. SEC has alleged that American investors held crypto assets worth over $2.7 billion on Kraken's platform, earning Kraken approximately $147 million in revenue from these assets, according to the complaint that has been filed with the SEC.

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Many centrally regulated exchanges such as Kraken and Gemini allow their users to stake their tokens so that they can earn a yield on their digital assets that are otherwise lying idle on the exchange platform. Crypto staking generally entails investors vaulting their crypto assets with a blockchain validator, which is tasked with verifying the accuracy of a transaction on the blockchain by monitoring the blockchain. Crypto tokens can be given as rewards for the locking away of assets by investors.

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According to the SEC, Kraken's staking platform has attracted more than 135,000 unique U.S. users over the past few months.

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According to Gary Gensler, “Whether you are offering investment contracts as a service, lending, or other methods, crypto intermediaries must provide investors with the appropriate disclosures and safeguards required by our securities laws,” whether they are providing staking-as-a-service, lending, or another method of investing.

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An SEC lawsuit filed today by Jerome Ayala accuses Genesis Crypto Loan and Gemini Crypto Exchange of offering and selling unregistered securities. This is just the latest in a series of SEC actions targeting the crypto industry.

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A report by the SEC alleges that Kraken offered investors an enhanced level of liquidity and immediate rewards as incentives to use the staking program, as a way of incentivizing them. According to the SEC, Kraken promoted and promoted its staking platform as an investment opportunity for U.S.-based users and generated revenue of $45.2 million, making a net income of more than $15 million from U.S.-based users.

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In an advertisement on Kraken's website, the company claimed its staking product would produce annual returns of up to 20%. In addition, the Exchange also made a promise to deliver these rewards twice a week to customers of the exchange, as stated on its website.

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There is no admittance or denial by Kraken that anything mentioned in the complaint by the SEC is true.

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Following CEO Brian Armstrong's warning that possible SEC action in retail crypto staking would be a "bad road," shares of cryptocurrency exchange Coinbase fell precipitously on Thursday.