Last week, the US Securities and Exchange Commission decided to declare war on steaking on centralised exchanges. Cryptocurrency exchange Kraken, which has already shut down the option for US residents, came under attack. In addition, the company had to pay out tens of millions of dollars, without admitting or denying its own guilt.

The main claim of the regulator here was that Kraken did not have clear restrictions on its operations. That is, in essence, the platform did accept user coins under the sauce of staking, but in reality the cryptocurrencies could be used to generate revenue in other ways.

This was actually a problem for the regulator, which requires clear coverage of what companies can do with user funds. Here is a video of the regulator’s head Gary Gensler explaining what is going on. The video works – it just doesn’t have a proper cover.

In response, Gensler predictably faced criticism. Still, Kraken is one of the most popular cryptocurrency exchanges and has been operating in the US for years. The platform complies with regulations, so it hardly deserves the approach it should have taken to the FTX exchange.

By the way, Commission officials were also reminded of the amount of losses FTX users faced. That is, then the SEC did not protect investors, but now for some reason decided to go after normal business. And this approach is really strange.

What will happen to cryptocurrencies

The news of a major exchange shutting down staking is perceived as a serious threat to such a source of passive income. However, this is not entirely true on the whole. According to Decrypt’s sources, the management tokens or so-called havernance tokens for the two largest co-stacking services Lido and Rocket Pool have seen a marked increase in price in the couple of days following the news about Kraken.

Lido token price over the past 90 days

The named platforms provide decentralised cryptocurrency stacking to users. That is, they automatically aggregate people's coins and send them to the stack. The rise in token values of such services could be perceived as an increase in trust in them amid bans from the Commission.

Rather, it’s a clear signal of concern for other exchanges – they may well get blacklisted by the Commission after the Kraken precedent emerged. In particular, Coinbase, the largest US cryptocurrency exchange, could be in the regulator’s crosshairs. So how do it and other trading platforms differ from some of the most popular steaking platforms?

As a reminder, blockchain asset stacking, based on the Proof-of-Stake consensus algorithm, is the basis for keeping a cryptocurrency network operational. Blocking a certain amount of cryptocurrency is an economic incentive for a validator to faithfully perform their role of validating transactions and keeping the blockchain active. Validators are rewarded for their participation in the network, but may lose some of their assets for inaction or deliberate harm to the process.

Growth in the volume of funds on an Etherium deposit smart contract

To become a validator on the Etherium network, you need to deposit 32 ETH or approximately $48,000 at the current price of the cryptocurrency into a cryptocurrency deposit smart contract. It is also possible to generate passive income with a much more modest initial amount – this is what so-called stacking pools are for – they pool users’ coins into the right amount and then pay them a proportional portion of the reward minus a commission.

Such platforms take up a significant share of the turnover of funds in decentralised finance. Overall, the 65 staking protocols tracked by DeFi’s Llama service account for $12 billion or 26 per cent of DeFi’s total assets. More than $11 billion of assets in liquid stacking protocols come from Etherium.

Top largest steaming platforms

The US Securities and Exchange Commission sanctions against Kraken were caused in part by the incorrect wording of the exchange’s customer service – at first glance, it might appear that returns were determined by the trading platform itself, and that revenue was generated from its activities. In reality, the profitability of staking is determined by the state of a particular blockchain and cannot be influenced by other services. That is, they can only offer the user a lower return when you factor in the commission for their activity.

In other words, the problem with Kraken was that the platform, in the eyes of the regulator, was providing returns on deposits rather than offering staking services per se. Coinbase’s general counsel Paul Grewal has already made an announcement on the matter.

Coinbase’s staking services are fundamentally different and are not securities in nature. For example, our clients’ returns depend on the fees paid by the protocol and our commissions, which we disclose in full.

Brian Armstrong, head of cryptocurrency exchange Coinbase, voiced a similar point of view on Sunday. He shared a link to an article titled “Stacking services on Coinbase are not securities. And here’s why,” and also noted that the company would be happy to defend this position in court. Accordingly, Coinbase will not go the way of Kraken, which has taken time out of its proceedings, paid a hefty fine and suspended the function at the same time.

Coinbase CEO Brian Armstrong’s tweet about his willingness to sue the SEC

However, the SEC could still continue its drastic action regarding centralised and even decentralised platforms in the industry. Commission Chairman Gary Gensler had earlier emphasised this – he seems willing to go to any lengths to achieve his goals in the standoff.


As a result, it can be assumed that the SEC will continue to cause problems for centralised companies that operate within US jurisdiction. However, stealing cryptocurrencies the right way, i.e. with full-fledged non-custodial wallets and blockchain protocols, will not be prohibited for ordinary people. So it is realistic to assume that the current ban will force more cryptocurrency enthusiasts to start dealing with normal coin storage outside of centralised services.

Of course, this is certainly not good for the reputation of digital assets, but companies are not going to fight the US regulators yet. The Coinbase exchange may have to prove its case in court, but it will take a lot of resources and time anyway. So the problem will not be solved in the coming months, so fans of digital assets should prepare for more regulatory strikes.