The subsidiaries of cryptocurrency exchange Kraken, Payward Ventures, and Payward Trading Ltd, have agreed to cease their on-chain staking service in the US, as part of a settlement with the regulators, besides a $30 million fine charged for offering the service without proper registration.
The US Securities and Exchange Commission (SEC) filed a complaint with the Federal court Thursday, accusing the exchange of running crypto asset staking-as-a-service program, which allowed users to transfer their assets to Kraken for an advertised annual return of up to 21%.
See Related: Proof-of-Stake (PoS) Definition
The commission is faulting the company for failing to provide honest disclosures and investor protection, and offering no insight to investors on how it was going to honor the repayments. That, according to the agency, is a breach of Section 5 of the Securities Act of 1933.
‘‘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 (the) securities laws,’’ said SEC chairperson Gary Gensler.
Affected Users Won’t Stake Tokens Efective Immediately
In compliance with the SEC’s steps, Kraken users would reportedly not be able to stake new tokens, effective February 9. Previously staked tokens would be unstacked and returned to the users’ spot wallets with no rewards afterward. For the staked ether, the digital assets would be unstaked after the anticipated Shanghai upgrade. The staking services for the non-US residents would continue as usual, notes the announcement.
Staking is a process where investors lock their crypto with a block validator, as part of the validation of transactions in a network. Blockchains that allow for staking – including Ethereum, Solana, Cosmos, Cardano, and Tezos – use staking, also known as proof-of-stake to secure their networks.
