Kraken is one of the world’s largest crypto exchanges.
Tiffany Hagler-Geard | Bloomberg via Getty Images
Crypto exchange Kraken will shutter its U.S. cryptocurrency staking operation and pay a $30 million fine to settle an enforcement action alleging it sold unregistered securities, the Securities and Exchange Commission
Many centralized exchanges like Kraken and Gemini offer customers the option to stake their tokens in order to earn yield on their digital assets that would otherwise sit idle on the platform. With crypto staking, investors typically vault their crypto assets with a blockchain validator, which verifies the accuracy of transactions on the blockchain. Investors can receive additional crypto tokens as a reward for locking away those assets.
More than 135,000 unique U.S. users registered for Kraken’s staking platform, the SEC said.
“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens,” companies must “provide the proper disclosures and safeguards required by our securities laws,” SEC chair Gary Gensler said in a statement.
It’s the latest in a series of SEC actions targeting the crypto industry and comes just weeks after the SEC alleged that crypto lender Genesis and crypto exchange Gemini allegedly offered and sold unregistered securities.
The SEC alleged that, to incentivize users, Kraken promised investors in the staking program “enhanced liquidity and immediate rewards.” Kraken marketed and touted the staking platform as an investment opportunity, the SEC claimed, with net income from U.S.-based users reaching nearly $15 million on revenue of $45.2 million.
Kraken advertised on its website returns of up to 20% annual percentage yield through its staking product. The exchange also promised on its website to deliver those rewards to customers twice per week.
Kraken did not admit or denying the allegations made in the SEC’s complaint.
Shares of crypto exchange Coinbase slid sharply on Thursday after CEO Brian Armstrong warned that potential SEC action in retail crypto staking would be a “terrible path.”
