The cryptocurrency exchange Kraken has agreed to a $30 million settlement with the Securities and Exchange Commission, which would require it to end a programme that promised investment returns to US customers who entrusted their digital assets to the business.
The SEC claimed in a complaint released on Thursday that the “staking” practise represented an unregistered offer and sale of securities. The SEC says that Kraken lied about the risks of the scheme, which was advertised as a way to make up to 21% a year.
If a court agrees to the deal, it could be a turning point for how cryptocurrencies are regulated and how the SEC tries to bring the sector under its control. But people who like cryptocurrencies say that the SEC’s crackdown on staking could have bigger effects that could hurt the cryptocurrency economy in the US.
The SEC complaint focuses on a procedure that the sector claims is essential to maintaining the sound operation of various virtual currencies. Investors’ contributions to the automated, technical process required to validate transactions become a part of it when they consent to stake, or contribute, their cryptocurrency tokens. Those that comply might receive extra tokens as compensation.
However, the SEC claimed in its lawsuit that Kraken failed to inform customers about the absence of protections it provided to individuals who engaged in staking via Kraken’s programme. The SEC further asserted that Kraken had omitted information regarding the status of the business, the costs it incurred, and the management of its clients’ tokens.
According to the Kraken Conditions of Service, defendants “retain the right to not pay any investor return,” the complaint stated. “Investors have had no insight into Defendants’ financial status and whether Defendants have the wherewithal to pay the promoted returns.”
Gurbir Grewal, head of the SEC’s enforcement office, said in a statement that Kraken’s scheme had provided “outsized gains untethered to any economic realities.”
In a blog post published on Thursday, Kraken claimed that as part of the settlement agreement, in addition to paying $30 million, it would “automatically unstake all U.S. client assets” that were a part of the programme and that its US clients would no longer be permitted to take part in staking. The corporation stated that non-US consumers will still be able to stake and receive the corresponding benefits.
Not all bitcoin platforms, including Kraken, provide staking-as-a-service. A similar programme is provided by the market leader Coinbase, whose website boasts up to 6% annual profits.