Kraken Cracks Under SEC Pressure, Agrees to Pay $30M

On February 9th, the Securities and Exchange Commission announced it had charged the cryptocurrency exchange Kraken with violating US securities law with its staking service. Furthermore, the SEC and the exchange revealed that Kraken agreed to terminate its staking service for customers in the United States and pay $30 million in disgorgement.

Kraken Settles With the SEC

In its announcement, the Securities and Exchange Commission stated it had charged two Kraken subsidiaries—Payward Ventures, Inc. and Payward Trading Ltd.—with violating US securities law. The violations were conducted through offering an unregistered crypto staking program and SEC Chair Gary Gensler stated that the action signals that all staking-as-a-service providers must register with his agency.

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.

Kraken elected to settle with the Commission and agreed to shut down its staking service in the US and pay $30 million in disgorgement. Additionally, two charged subsidiaries agreed to be permanently enjoined from offering a crypto staking service through any means.

SEC’s targeting of Kraken’s staking service comes as an unwelcome development following a Twitter thread published by Coinbase’s Brian Armstrong on Wednesday afternoon. In the thread, Armstrong discussed “rumors” that the SEC is seeking to ban crypto staking for retail investors in the US.

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Kraken to Shut Down Crypto Staking in the US

Shortly after the SEC announcement, Kraken published a blog post detailing how the shutdown of its staking service will work. According to the post, all staked non-ETH tokens will automatically be unstaked and returned to their owners. Ethereum will remain staked until its Shanghai upgrade is complete and its reward structure will remain unchanged until then.

Kraken also stated it would distribute final staking rewards on February 9th, albeit in their unstaked form. Following the decision, customers in the US will no longer be able to stake new assets. The exchange, however, said that the service will continue without interruptions for its customers outside the US through separate subsidiaries.

A settlement between the exchange and the SEC has been expected since Wednesday afternoon. At that time, it was reported that the Commission was in the late stages of an investigation into Kraken. While the SEC has already been criticized for its aggressive approach to the industry, it is likely only to ramp up its efforts in 2023 as it named the sector as one of its main priorities for the year.

Editorial note (February 9th, 2023, 5:18 PM EST): The article was extensively updated with details from the SEC’s announcement, Kraken’s blog post, and had additional context added to it.

Do you think the enforcement against Kraken is the prelude to an outright ban of crypto staking in the US? Let us know in the comments below.