Has the US Killed Crypto Staking?

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Has the US Killed Crypto Staking?

One of the most powerful innovations in the realm of cryptocurrency is the idea of “staking.” From a consumer standpoint, the idea is similar to an old-fashioned savings account: you own some ether (or other crypto) and you agree to lock it up for a certain amount of time on the blockchain network. Typically, this is done through the exchange, such as Coinbase, where you bought the crypto. In return, you are paid an interest rate that will vary according to circumstances but is generally going to be much higher than any bank will pay for stashing your cash. To date it’s been a very popular way for investors to make passive income on a crypto investment without having to sell. It’s also part of the blockchain validation process by which crypto networks maintain their security.

The potential downside should be screamingly obvious in the wake of the FTX meltdown. It’s far from clear that even the cleanest crypto exchanges have investors’ best interest in mind when they do whatever they do with these digital assets. And unsurprisingly, while traditional US banks are highly regulated, there is a stunning lack of clarity and oversight in the realm of crypto staking.

That gap took center stage on Thursday, when the Securities and Exchange Commission (SEC) charged Kraken, one of the world’s largest crypto exchanges, with failing to register is staking service as a security. Kraken will shut down staking, and pay $30 million in penalties.