US-based crypto exchange Kraken has agreed to shut its crypto-staking business in the US, and pay $30 million to settle the Securities and Exchange Commission (SEC) charges over selling unregistered securities.
Crypto staking refers to locking up investors’ crypto assets for a certain period of time in exchange for rewards. At Kraken, for example, it boosts earning up to 24% annual percentage yield, according to its website.
“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,” said SEC Chair Gary Gensler.
Despite the promise, there is a slew of risks associated with staking. For example, investors lose control of their tokens with little protection guaranteed.
Kraken, which has been offering staking products to the public since 2019, pools the assets transferred by investors and stakes them on behalf of the investors.
“Today, we take another step in protecting retail investors by shutting down this unregistered crypto staking programme, through which Kraken not only offered investors outsized returns untethered to any economic realities but also retained the right to pay them no returns at all,” said Gurbir Singh Grewal, director of the SEC’s Division of Enforcement.
“All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place,” he added.
Kraken on Thursday said that they will automatically unstake all US client assets enrolled in the on-chain staking programme. The assets will no longer earn rewards, except staked ether, which will be unstaked after the Shanghai upgrade. US clients will not be able to stake any additional assets, including ETH.
But, Kraken will continue to offer staking services for non-US clients through a separate subsidiary.
In December, Reuters reported that Kraken would cease its operations in Japan amid market volatility. Prior to that, Kraken also said it would reduce its workforce by 30%, or about 1,100 employees.
Kraken is the world’s third-largest crypto exchange by trading volume, after Binance and Coinbase, according to Coinmarketcap. Currently, the firm claims to offer full services to users residing across Asia, which covers China, a country that outlawed crypto trading in late 2021, according to its website.