SEC chief threatens sanctions against other cryptocurrency platforms after Kraken steaking ban
The US Securities and Exchange Commission’s pressure on cryptocurrency exchange Kraken this week is a clear warning to the entire digital asset industry. SEC chief Gary Gensler reiterated the relevant stance. As recently as yesterday, the popular cryptocurrency platform Kraken agreed to pay a $30 million fine and shut down cryptocurrency-stacking services for customers from the United States at the regulator’s request. The head of the agency then hinted that the rest of the market should brace themselves.
It should be noted that the reaction to the SEC’s actions within the cryptocurrency community has been predominantly negative. Blockchain enthusiasts have seriously questioned why regulator head Gary Gensler has been so open to FTX crypto-exchange founder Sam Bankman-Friede.
It may also be recalled that Gensler failed to prevent any of the collapses of cryptocurrency platforms like Terra, Three Arrows Capital and BlockFi last year, where investors actually lost money. In this case, however, the agency is preventing investors from generating income and on top of that it is fining a company with an exceptionally positive reputation for compliance, i.e. compliance with the law.
How the SEC puts pressure on the cryptocurrency market
A little later, Gensler was a guest on one of CNBC’s broadcasts and was interviewed about what happened. If before he only hinted at potential restrictions to the industry, now the SEC head almost openly declares war.
The following comment from Gensler, published by the news outlet The Block, deserves special attention.
It really should be a warning – whether you call steaming credit, earnings, yields and annual percentage yields or APYs.
As a reminder, it was made clear earlier that the agency opposes the activities of companies that advertise a steaking service, but may use the users' crypto-assets received to generate returns in other ways. In such a case, the Commission wants to know exactly how such companies make money and at the same time to voice this information to users. Decentralised stacking, or stacking with pools that pool users' cryptocurrencies into validator nodes, is not inherently problematic.
SEC chief Gary Gensler
On Thursday, SEC officials said that cryptocurrency companies must ensure “adequate disclosure and safeguards required by securities laws” when offering credit- or staking-type services. It is worth noting that the Kraken exchange subsequently agreed to discontinue its blockchain-stacking services for US customers only, without admitting or denying the allegations against itself.
However, the Commission’s war against crypto may not stop at Kraken alone – at least not while Gensler is publicly making such statements.
Other platforms should take note and try to bring their operations into compliance.
It's worth noting that such penalties from the SEC don't look particularly fair. But the regulator has traditionally dragged its feet with its business guidelines, i.e. it does not tell companies what framework they can operate within. And in this case they receive hefty fines rather than warnings or explanations. So this attitude could force companies to withdraw from the US market, which would be a logical response to what is happening.
The Commission’s action immediately sparked criticism in the cryptocurrency community and beyond. Many rightly stated that the agency should not approach the issue of regulation only on the side of bans – such tactics will simply lead to more funds flowing offshore.
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Within the Commission itself, there are also critics of the regulator’s final decision on Kraken. One of them is Commissioner Hester Pearce, who has long advocated adequate regulation of the crypto market.
Speaking at a student conference at the University of Pennsylvania, Pearce noted that the US chief investment regulator’s lawsuit against the crypto-exchange was just one example of enforcement regulation in the digital asset space. What’s more, the agency hasn’t even held any talks with the industry about such a tough decision. Here’s Pearce’s comment.
We have not attempted to meet with the industry to discuss steaming. Yesterday’s decision essentially says: “Let’s just shut everything down.” But that’s not a solution to the problem.
SEC Commissioner Hester Pearce
According to Pearce, the SEC leadership has long been aware of the principles of staking and its role in the life of the crypto industry. Nevertheless, the decision to move against Kraken this week was almost spontaneous – the regulator made the ultimate decision not to negotiate with anyone in the crypto industry, but simply to force everyone to follow its instructions.
The situation itself is dangerous not so much in the fact that Kraken is banned specifically, but in setting a precedent for other US exchanges. For example, Coinbase, the largest U.S. cryptocurrency exchange, also offers steaking services, although the principle of this service is different from what is happening with Kraken. However, no one can still guarantee that there will be no problems for the site in the future – and this creates an unsatisfactory business environment in the US for such giants.
We think that the position of the US Securities and Exchange Commission is strange in any case. The regulator does not want to work on the framework for doing crypto business in the country, but instead randomly looks for reasons to pick on this or that company and fines it. Naturally, this is not good for the crypto sector in the US and the industry as a whole. So here we are left to believe that Gensler's follower will turn out to be more adequate and professional.
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