SEC Commissioner Peirce: Kraken Staking Action Not a ‘Fair Way of Regulating’

Yesterday, the Securities and Exchange Commission announced its enforcement action against Kraken, forcing the crypto exchange to shut down its staking service in the U.S. and pay a $30 million fine.

Kraken’s staking service offered its customers an opportunity to earn rewards by depositing their crypto into various yield-generating protocols, advertising up to 24% yearly returns.

The SEC’s complaint alleged that Kraken had failed to register its staking-as-a-service with the regulator.

The Commission’s decision was not unanimous, however.

Commissioner Hester Peirce, known in the industry as “Crypto Mom,” shared her dissent yesterday to the SEC’s crackdown, calling such actions “not an efficient or fair way of regulating” an emerging industry.

She said, citing Gensler, that the SEC “again chose to speak through an enforcement action, purporting to ‘make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.’”

Peirce also noted that the SEC’s action against Kraken enjoins it from “ever offering a staking service in the United States, registered or not.”

What’s at stake for other exchanges?

While Kraken’s U.S. staking service is likely shuttered for good, it is still unclear whether other American companies will be affected.

Hours before the SEC released its press release on the settlement with Kraken, Coinbase CEO Brian Armstrong cited rumors pertaining to the crackdown.

Armstrong tweeted that he was hearing “rumors” that the SEC wanted to ban staking services for retail investors in the U.S.

Still, Coinbase’s chief legal officer, Paul Grewal, told Decrypt that Coinbase was not affected by the SEC’s action against Kraken, claiming differences in the two exchanges’ staking services:

“Staking on Coinbase continues to be available and staked assets continue to earn protocol rewards,” Grewal said. “What’s clear from today’s announcement is that Kraken was essentially offering a yield product. Coinbase’s staking services are fundamentally different and are not securities. For example, our customers’ rewards depend on the rewards paid by the protocol, and commissions we disclose.”

A Kraken spokesperson told Decrypt that "Kraken offered a staking product, not a yield product, and the SEC did not allege differently. While we expect this settlement has broader implications for the industry, we cannot predict or comment on how other specific industry participants will react."

Peirce’s dissent also suggests that these platforms are not all the same, adding that “one-off enforcement actions and cookie-cutter analysis does not cut it.”