Kraken Shuts Staking-as-a-Service in US amid $30M SEC Settlement

Cryptocurrency exchange, Kraken has reached a $30 million settlement with the US Securities and Exchange Commission (SEC) and agreed to end its crypto staking-as-a-service platform for US customers.

Kraken Settles for $30 Million

Announced on Thursday, the settlement with Payward Ventures, Inc. and Payward Trading Ltd., two companies operating Kraken, arrived as the US regulator accused the exchange of failing to register its staking-as-a-service program.

Settlements are not law. They're a decision that the economics of settling are better than fighting, no more.The SEC thinks staking-as-a-service is a security. Kraken didn't admit or deny either way.It may be a tough question, but the SEC hasn't answered it either way today.

Staking offers crypto holders rewards for locking up their cryptocurrencies with a blockchain validator. Holders of the staked tokens receive rewards in newly mined cryptocurrencies but lose control over their original holding until they are staked.

According to the SEC, Kraken launched staking-as-a-service in 2019 and advertised annual investment returns of as much as 21 percent. However, Kraken's website shows the returns to be only up 20 percent.

Kraken's ad on staking

The SEC raised risk-related concerns on the platforms offering staking-as-a-service as they have “very little protection.”

“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,” said the SEC Chair, Gary Gensler.

“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 Is Terminating Staking for US Clients

In a blog post, Kraken confirmed that it is immediately ending its on-chain staking services for US clients and will automatically unstake all US client assets enrolled in the on-chain staking program. However, it will unstake staked Ether after the upcoming Shanghai upgrade but will presently distribute rewards.

Moreover, the crypto exchange detailed that it will continue to offer staking services to non-US clients through a separate subsidiary.

The settlement between the SEC and Kraken was finalized only a day after media reports revealed an ongoing regulatory investigation against the exchange for offering unregistered securities.

Meanwhile, Kraken is facing the impact of the ongoing “crypto winter.” Recently, the exchange reduced its workforce by 30 percent and shuttered its operations in Japan.