​SEC chief records an address to crypto investors after settling with Kraken

What’s new? The chief of the US Securities and Exchange Commission (SEC), Gary Gensler, has released a video about the staking of digital assets following Kraken’s decision to stop providing those services to US users as part of a settlement with his agency. According to Gensler, staking is a complex and time-consuming process that requires a large number of tokens, and the resources spent do not guarantee profits. He added that staking services must be provided in accordance with federal securities laws.

SEC chief’s video

What are the dangers of staking according to the SEC chief? According to Gensler, when a user transfers their assets to a staking service provider, the latter begins to control them by offering payouts in exchange. The SEC chief explained that in such a case, the customer no longer owns his keys and cryptocurrencies, he becomes an investor in the platform and can eventually end up in bankruptcy court.

Gensler also pointed to the lack of transparency in the operation of staking investment products. According to him, investors should know what is happening to their coins, including whether they are actually being staked, or whether they are being lent or used for trading operations at all.

Gensler stressed that customers need to know where their rewards are coming from and whether their share is fair. “Are the underlying crypto protocols genuinely creating value on your investment? Or are they just new tokens that dilute the value of ones you already have?” the SEC chief asks in his video.

In addition, Gensler, on CNBC’s Squawk Box, urged crypto companies to “take note” of Kraken’s decision. He said that platforms such as Kraken can offer investment contracts, but they must ensure full and truthful disclosure.

"Companies like Kraken can offer investment contracts but they have to have full, fair and truthful disclosure," says SEC Chair @GaryGensler on the settlement with #crypto exchange @krakenfx. "That's our basic bargain. They were not complying with that basic law." pic.twitter.com/DisYr4gQKg — Squawk Box (@SquawkCNBC) February 10, 2023

When asked by show host Andrew Sorkin whether enforcement action could be applied to other yield-earning programs, such as Earn from the US crypto exchange Coinbase, Gensler replied that it is not as important what the instrument itself is called as the underlying economics.

The SEC chief drew attention to a number of ongoing bankruptcy cases, including that of the lending platform Celsius. In January, a US court ruled that all cryptocurrencies on the platform’s Earn program belonged to Celsius, not customers.

“There’s a saying in crypto that says not your keys, not your coins. So those other platforms should take note of this and seek to come into compliance, do the proper disclosures and registration and the like,” Gensler said.

Kraken situation. The SEC held a closed meeting on February 9, following which it said that Kraken should stop providing staking services to customers from the United States. The product is considered by the commission to be an offer of unregistered securities. Also, US customers will not be able to use the exchange’s lending service.

Coinbase CEO Brian Armstrong called the ban on staking “a terrible path” for the country that would lead to companies going offshore. His exchange continues to provide the service. Armstrong added that the innovative staking technology improves the scalability and security of networks and reduces the carbon footprint.

Kristin Smith, CEO of the Blockchain Association, a lobbying group, held a similar view. She called on Congress to end the SEC’s “attack” on the crypto industry, noting that the regulator’s activities “driving innovation offshore.”