Members of the crypto community seem outraged over the recent charges laid against crypto exchange Kraken in relation to its staking-as-a-service program in the United States.
On Feb. 9, the United States Securities Exchange Commission (SEC) announced it had settled charges with Kraken over “failing to register the offer and sale of their crypto asset staking-as-a-service program,” which it claims is qualified as securities under its purview.
Kraken agreed to settle the charges by paying $30 million in fines and to immediately cease offering staking services to U.S. retail investors, though they will continue to be offered offshore.
The move appears to have attracted the ire of not only the general crypto community but also of investors, politicians and industry executives.
Cinneamhain Ventures partner and Ethereum bull, Adam Cochran, called out SEC chief Gary Gensler, describing him as “an agent of an anti-crypto agenda” rather than a regulator, and questioning why the same standards weren’t applied to Sam Bankman-Fried and FTX:
Gensler is not a regulator. He is an agent of an anti-crypto agenda, who only aims to wield his power as cudgel for those he doesn’t agree with.
So the big question then, is why didn’t FTX get this treatment?
Whose pocket is he in?
— Adam Cochran (adamscochran.eth) (@adamscochran) February 9, 2023
In a Feb. 9 statement shared on Twitter, Kristin Smith, CEO of the Blockchain Association, argued that the situation at hand is a textbook example why Congress — not the SEC — should be working with industry players to forge appropriate legislation:
The following statement is attributed to @KMSmithDC in response to today’s settlement between the SEC and Kraken:https://t.co/32KysvKfz0 pic.twitter.com/8vkWZXB6a2
— Blockchain Association (@BlockchainAssn) February 9, 2023
U.S. Congressman Tom Emmer — who has long been a critic of Gary Gensler — reiterated the importance of staking in the crypto ecosystem.
In a Feb. 9 Twitter post, the lawmaker explained that staking services will play an important role in “building the next generation of the internet” and argued that the “purgatory strategy” will hurt “everyday Americans the most,” as they may soon be forced to fetch such services offshore.
Meanwhile, Ryan Sean Adams, the founder of the Ethereum show Bankless, suggested to his 220,800 Twitter followers on Feb. 9 that the SEC could have taken other measures rather than charging Kraken out of the blue:
You could have:
– Mandated proof-of-reserves
– Required staking transparency
– Supported decentralized staking
Instead, we just got another gary g. ban hammer to the head. And we have no confidence you won’t come for decentralized staking next.
You’re driving it all offshore.
— RYAN SΞAN ADAMS – rsa.eth (@RyanSAdams) February 9, 2023
Other members of the community questioned how Kraken could possibly have registered with the securities regulator, as there was “no clear path” to approve crypto staking.
Others suggested it could impact Ethereum’s consensus layer, given Kraken is the fourth-largest validator on Ethereum, according to on-chain metrics platform Nansen.
Related: ‘Kraken Down’ — SEC commissioner rebukes own agency over recent action
However, not all were against the SEC’s decision. Prominent Bitcoin bull Michael Saylor — who has long considered ETH and other proof-of-stake cryptocurrencies to be securities — agreed with Gensler’s analysis that retail investors “lose control” of their tokens when they’re delegated to external staking service providers:
“Not your keys … ” – @GaryGensler. The @SECGov understands the importance of self-custody. https://t.co/oxPkFeJ77k
— Michael Saylor⚡️ (@saylor) February 9, 2023
Meanwhile, attorney and chief policy officer of the Blockchain Association, Jake Chervinsky, noted that such “settlements are not law” and that Kraken’s decision to settle was likely an economic decision rather than a legal one:
Settlements are not law. They’re a decision that the economics of settling are better than fighting, no more.
The SEC thinks staking-as-a-service is a security. Kraken didn’t admit or deny either way.
It may be a tough question, but the SEC hasn’t answered it either way today.
— Jake Chervinsky (@jchervinsky) February 9, 2023
The debate comes as the SEC’s charge towards enforcing action against staking service providers prompted Coinbase CEO Brian Armstrong to say that “regulation by enforcement” would be a “terrible path” for U.S. innovators, as they’ll be forced to push more of their services offshore.