Kraken to Shut Crypto-Staking Service, Pay $30M Fine in SEC Settlement

Crypto exchange Kraken will “immediately” end its crypto staking-as-a-service platform and pay $30 million to settle U.S. Securities and Exchange Commission (SEC) charges it offered unregistered securities, the agency announced Thursday.

The decision confirms a CoinDesk scoop from earlier in the day.

Read more: Kraken Agreed to Shutter Crypto-Staking Operations to Settle SEC Charges: Source

Payward Ventures, Inc. and Payward Trading Ltd., the registered companies that make up Kraken, will end its staking services and programs, the SEC said. The programs offered the general public access to staking services since at least 2019.

“The complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts,” the SEC release said.

In a blog post, Kraken said it would automatically unstake any assets staked by U.S. clients except for staked ether, which won't be unstaked until after the Ethereum Network's Shanghai upgrade takes effect. U.S. clients will also be unable to stake new assets (including ether). Non-U.S. clients are unaffected.

The SEC filed its lawsuit in federal court on Thursday.

While Kraken’s website offered a 20% yield on its staking service, the SEC press release suggested it may be as high as 21%.

The SEC’s characterization of Kraken’s staking setup highlighted the “risks” investors take on when staking their tokens with “staking-as-a-service” providers, who give them “very little protection,” a press release said.

Staking is the process by which proof-of-stake blockchain networks like Ethereum maintain their security. The network’s decentralized validators post crypto as a form of collateral to attest they’ll stay honest. In return for processing transactions, they get rewarded with more tokens. Many crypto stakers loan their tokens to service providers who run the nodes, and share in the returns.

Coinbase (COIN) also offers staking for its customers, as do an array of decentralized protocols like Lido.

“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 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.”

UPDATE (Feb. 9, 2023, 20:15 UTC): Adds SEC settlement, further detail.

UPDATE (Feb. 9, 20:30 UTC): Adds Kraken blog post.