SEC’s Gensler vs SEC’s Peirce: Who is right about Kraken and staking?
“More transparency around crypto-staking programs like Kraken’s might well be a good thing. However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.”
SEC Commissioner Hester Peirce has commented on the recent SEC action against Kraken, the digital asset trading platform that was forced to end its crypto staking service as part of its settlement.
Many within the digital asset ecosystem have resisted and criticized the SEC enforcement approach to the emerging asset class, but the infamous ‘crypto winter’ – which saw several firms going down after extraordinary risk mismanagement and fraud – has humbled most, which are now more open to SEC Chair Gary Gensler’s policy.
Besides the announcement of the settlement with Kraken, the financial watchdog yesterday released a video with SEC boss Gensler explaining how staking works, its flaws, and why services providers must be compliant with the agency for the benefit of users.
Although the settlement with Kraken was seen as a win for the SEC, Commissioner Hester Peirce doesn’t see it that way and made an official statement in that regard:
“Kraken operated a service through which its customers could offer their tokens up for staking. The customers earned returns, and the company earned a fee. The Commission argues that this staking program should have been registered with the SEC as a securities offering. Whether one agrees with that analysis or not, the more fundamental question is whether SEC registration would have been possible. In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline. An offering like the staking service at issue here raises a host of complicated questions, including whether the staking program as a whole would be registered or whether each token’s staking program would be separately registered, what the important disclosures what be, and what the accounting implications would be for Kraken.
“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, 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.” Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it.
“Most concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well. The program will no longer be available in the United States, and Kraken is enjoined from ever offering a staking service in the United States, registered or not. 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.
“More transparency around crypto-staking programs like Kraken’s might well be a good thing. However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.”
The debate over the regulatory approach to digital assets is not new and is likely to continue for many years to come.
