Kraken Agrees to Pay $30 Million in SEC Settlement, Crypto Markets Tumble

Kraken, an exchange for cryptocurrency based in the United States, has come to an agreement with the SEC to pay $30 million in restitution, interest, and fines for its involvement in the unregistered offering of staking services.[0] On February 9th, 2023, an announcement was made that Kraken’s U.S.-based staking program would be discontinued, along with other details of the settlement.[0]

Staking, which allows users to earn rewards by using their existing holdings of tokens to verify transactions, is a feature of proof-of-stake blockchains, such as Ethereum.[1] According to SEC Chair Gary Gensler, crypto intermediaries need to provide proper disclosures and safeguards when offering investment contracts, regardless if it’s through staking-as-a-service, lending or other means.[1] “Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection,” Gensler said.[2]

The news sent the cryptocurrency markets tumbling, with Bitcoin falling 3.7% in the past 24 hours to trade below $22,000 Friday, according to CoinMarketCap data, and Ethereum dropping 5.2% to hover above $1,500.[3] Shares of Coinbase (COIN) fell 4% following the news and Coinbase shares dropped 23% so far this week.[4]

Coinbase Chief Legal Officer Paul Grewal also weighed in on the news, claiming that Coinbase’s staking program is not affected by the settlement.[5] “What’s clear from today’s announcement is that Kraken was essentially offering a yield product,” Grewal wrote in a statement shared with The Block.[6] “Coinbase’s staking services are fundamentally different and are not securities.”[6]

Kraken stated in a blog post that it would still offer staking services to non-U.S. customers through a subsidiary, but according to the SEC announcement, the firm is permanently banned from providing staking services to U.S. residents, even if they sought to register it with the regulator.[0]

0. “Kraken Winds Down Staking for US Investors, Pays $30 Million to Settle Unregistered Offering of Staking Services …” Bitcoin News, 9 Feb. 2023, https://news.bitcoin.com/kraken-winds-down-staking-program-pays-30-million-to-settle-unregistered-offering-of-staking-services-case-with-sec

1. “Kraken settles with SEC for $30M over staking services” Axios, 9 Feb. 2023, https://www.axios.com/2023/02/09/kraken-staking-sec-settlement

2. “Kraken pays $30 million to settle SEC charges over staking program” Yahoo News, 9 Feb. 2023, https://news.yahoo.com/kraken-pays-30-million-to-settle-sec-charges-over-staking-program-210709450.html

3. “Kraken to stop offering crypto ‘staking’ and pay $30m SEC penalty” Markets Insider, 10 Feb. 2023, https://markets.businessinsider.com/news/currencies/what-is-crypto-staking-kraken-sec-settlement-penalty-gary-gensler-2023-2

4. “Bitcoin Price Plummets As Crypto Regulation Heats Up; Major Exchange Pays $30 Million SEC Settlement” Investor’s Business Daily, 10 Feb. 2023, https://www.investors.com/news/bitcoin-price-plummets-as-regulations-tighten-major-exchange-pays-sec-30-million

5. “Coinbase Drops Most Since July as SEC Cracks Down on Crypto Staking” Yahoo! Voices, 10 Feb. 2023, https://www.yahoo.com/now/coinbase-drops-most-since-july-221242910.html

6. “Community urges Coinbase to relist XRP as CEO fights for staking” Cointelegraph, 10 Feb. 2023, https://cointelegraph.com/news/community-urges-coinbase-to-relist-xrp-as-ceo-fights-for-staking