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  • Writer's pictureSarah Dixon

Decentralized Staking Services and Self-Custody Just Got a Huge Boost From the SEC – Here’s Why

The US Securities and Exchange Commission (SEC) is cracking down on crypto staking. The regulator recently reached a $30M settlement with Kraken, with the exchange closing down its digital asset staking services in the US. However, the crypto community believes that this crackdown will trigger the growth of decentralized staking services and self-custody.

SEC cracks down on crypto staking

The SEC has been cracking down on crypto staking activities. The crackdown started with the lawsuit against Gemini and Genesis shortly after the latter filed for bankruptcy. According to the SEC, the two institutions needed to register the Gemini Earn product because it operated like a security.

Now, the SEC has forced Kraken to suspend its crypto staking services to retail investors in the United States. The exchange will also have to pay $30 million to the regulator. The crypto community believes this is just the start of the actions the regulatory body is willing to take to regulate the industry.

While explaining why the SEC was banning these services, Gensler said that most staking providers did not give proper disclosures to their customers, including how these companies can protect the staked assets. Therefore, providers needed to register staking services with the agency.

Gensler said,

Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.

The SEC chair also said that when companies or platforms come with high returns, their services are classified as lending, earning, rewards, APY, or staking. Therefore, there was a need to protect these services under federal securities laws. The SEC Chair has also advocated for self-custody.

SEC gives decentralized staking and self-custody a major boost

There has been much chatter about the effects of the ongoing crackdown on crypto staking on the industry. The CEO of Coinbase, Brian Armstrong, said that the SEC was planning to ban crypto staking for retail investors based in the United States and called out to the regulator for regulating the industry through enforcement.

The actions being taken by the SEC have also been criticized by one of the SEC Commissioners, Hester Pierce, who said that the regulator’s actions were not sufficient for the industry and that they would stifle the growth of an emerging industry.

Nevertheless, some players in the industry could benefit from the SEC cracking down on crypto staking activities. A recent report by Blomberg noted that some decentralized finance platforms such as Lido, Rocket Pool, and StakeWise could benefit from this crackdown.

Lido Finance is the largest Ethereum staking platform. It controls around 35% of all the staked Ether, with Coinbase coming in second. Therefore, if the SEC crackdown also extends to Coinbase, investors could move their funds to decentralized staking pools such as Lido.

Lido and Rocket Pool are already contesting over who will get the largest share of the Coinbase staking market share. According to Rocket Pool, there was a high likelihood of Coinbase staking moving to the platform in case of a ban because Coinbase Ventures was planning to join the Rocket Pool Oracle DAO.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


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