Crypto exchange Kraken ends staking programme and pays $30mn in SEC case

Crypto exchange Kraken will discontinue its crypto staking programme in the US and pay $30mn in a settlement with the US Securities and Exchange Commission, as the regulator expands its crackdown on digital assets.

The settlement resolves claims from the SEC that Kraken — one of the best-known exchanges in the crypto industry — failed to register the offer and sale of its crypto asset programme. Investors would transfer crypto to Kraken, “staking” their tokens, in exchange for returns of up to as much as 21 per cent, the regulator said.

Kraken sold digital asset “staking services” to the public starting in 2019 and has marketed its staking investment scheme as “an easy-to-use platform”, the SEC said. By April last year, US investors had poured more than $2.7bn worth of crypto assets into the company’s staking scheme, which has earned Kraken approximately $147mn in net revenue since its launch, according to the agency.

The exchange offered investors “outsized returns untethered to any economic realities”, said Gurbir Grewal, the SEC’s director of the division of enforcement.

Kraken, which neither admitted nor denied the SEC’s allegations, said it has agreed to end its on-chain staking services for US clients only. Staking services for non-US clients will “continue uninterrupted”, the exchange said.

The SEC’s announcement follows industry fears of a broader crackdown on crypto staking. Brian Armstrong, chief of US-listed exchange Coinbase, said he believed the SEC “getting rid” of staking for retail customers would be a “terrible path for the US”.

In a statement earlier this week, the SEC said emerging technologies and crypto assets were a priority for the regulator in 2023, describing the sphere as posing potential risks to investors and the integrity of US capital markets.

“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” SEC chair Gary Gensler said in a prepared statement.

The move against Kraken is the latest in a number of enforcement actions targeting what regulators have described as the sector’s failure to properly register crypto asset programmes in violation of securities rules. The SEC last month sued digital asset-trading group Genesis and Gemini, the crypto exchange founded by Cameron and Tyler Winklevoss, for not registering a crypto asset-lending scheme as a securities offering.

A few days later, crypto lender Nexo agreed to pay $45mn to settle SEC charges over similar violations. Its settlement followed a series of cease and desist orders the lender received from state regulators for allegedly offering unregistered securities.

The New York attorney-general’s office also sued Nexo for “falsely representing that it complies with applicable regulations and licensing requirements”.