The U.S. Securities and Exchange Commission (SEC) recently slapped Kraken with a $30 million fine and a court order to end its staking program after failing to register its rewards as a security.
And yes, they could do it to Coinbase, too.
But no, I do not care – and neither should you.
Here’s the problem:
The SEC argues that Kraken’s staking rewards program counts as a security and is therefore illegal because it wasn’t registered as such.
Kraken argues – well, it doesn’t matter what Kraken argues, because they lost, anyway. The SEC slapped Kraken with a $30 million fine and a court order to end staking rewards in the U.S., which spooked competitors.
This includes America’s favorite cryptocurrency exchange, Coinbase, and its popular staking rewards programs for assets like Cardano (ADA), Algorand (ALGO), and more…
…all of which are not securities, according to Coinbase’s CEO Brian Armstrong.
“We really just are providing a service that passes through those coins to help them participate in staking, which is a decentralized protocol,” Armstrong explained in an interview this week.
And for what it’s worth, he’s right – Coinbase and Kraken are just the middlemen. The exchange stakes your assets for you on its respective protocol, which is a mechanism for blockchain validation – not a rewards program to create extra income. That’s just an added bonus.
Whether or not that counts as selling an unregistered security is none of our business. That’s the SEC’s job to decide. The point is that Coinbase and Kraken are centralized players in a decentralized market – sure, they make buying assets easier, but we don’t need them to invest in cryptocurrency.
And we don’t need them to stake our assets, either. I don’t think Coinbase is going to receive the same punishment as Kraken, but even if they do halt their staking programs in the U.S. – I won’t lose sleep at night.
Everything I can stake on Coinbase or Kraken can be staked elsewhere, too. Like Daedalus, for example, the Cardano network’s wallet that allows you to stake your ADA directly on the protocol without any exchanges that are bound by U.S. law to hold your money hostage.
Even if the staking rewards do count as securities, once they hit secondary markets…it doesn’t matter what the SEC says. People can take their staking rewards off the exchange and send them into the anonymous and decentralized abyss that is the cryptocurrency market.
The only place the SEC has control over are the exchanges themselves. Not the assets, not the staking, and certainly not the investors.
If you’re one of the thousands of investors staking your assets on an exchange like Kraken or Coinbase, this Digital Heavyweights-exclusive livestream will tell you where to stake each of your assets instead to avoid disruption from the SEC.
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Chief Crypto Strategist, American Institute for Crypto Investors