Kraken is ending its cryptocurrency staking service for US users in a settlement.
The settlement with the Securities and Exchange Commission (SEC), which included penalties and other costs of $30 million, came after the SEC accused Kraken of failing to register the offering and sale of this program, shared the SEC on Thursday (February 9) with its ) press release.
“Whether through staking-as-a-service, lending, or otherwise, when offering investment contracts in exchange for investor tokens, crypto intermediaries must make the appropriate disclosures and safeguards required by our securities laws,” SEC Chairman Gary Gensler said in the publication.
Staking is a way to earn passive income from crypto holdings. While generally safer and easier than yield farming, it does come with risks, which include the volatility surrounding everything crypto, as well as the fact that many staking pools require investors to hold their cryptocurrency for a set period of time to lock – which increases the risks of volatility.
Gensler said in September that staking could turn crypto into securities because it becomes very similar to lending — and the SEC has said firms offering crypto lending products must register with the agency.
The SEC said in the press release that the company advertised annual returns of up to 21% on Kraken’s staking service and staked assets on behalf of investors, but offered them no information on whether it would be able to do so to pay returns.
“In each case, we have seen the consequences of individuals and companies promoting and offering crypto investments outside of the protections of federal securities laws: Investors lack the disclosures they deserve and are harmed when they don’t receive them.” Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in the press release.
According to the press release, Kraken agreed to the settlement without admitting or denying the allegations.
In a blog post Thursday, Kraken said it would immediately take back all assets from U.S. customers who signed up for the program — except for staked ether, which will no longer be used after an upgrade — and U.S. customers would prevent investing additional assets.
The company said it will continue to offer staking services to non-US customers through a subsidiary.
“Staking services for non-US customers will continue uninterrupted,” Kraken said in the post. “Non-US customers can continue to wager and redeem assets as usual, as well as automatically earn and wager rewards.”
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