Crypto users in the United States remain skeptical about the future of the industry following the SEC’s crackdown on staking services for altcoins. Is the future in peril for US crypto staking? What’s next for investors? Crypto expert Practical Bhuyan seeks answers to these questions.
The SEC’s crypto war continues
Most individuals were just starting to get the idea, but after yesterday’s crypto crackdown by the US SEC, things are now looking bleak for the majority of crypto staking service providers and investors in the country. As you follow on Kriptokoin.com, the US Securities and Exchange Commission (SEC) reached a $30 million settlement with trading platform Kraken on Thursday. He also requested an agreement from the crypto exchange to close staking operations for altcoins. It then announced that it would start charging fees from platforms that offer rewards to customers through staking.
The larger rival exchange Coinbase Global Inc. It’s highly likely that other companies, such as others, will feel pressured and abandon their staking services as Kraken has. On Wednesday, the night before Kraken discontinued its staking service, Coinbase CEO Brian Armstrong issued a warning to his 1.1 million followers on Twitter that the securities regulator may want to end staking for retail users in the United States. . Talking about the current market sentiment regarding staking, Christine Kim, research associate at Galaxy Digital, said:
If the SEC’s recent enforcement action, it appears, is targeting all US-as-a-service staking businesses, it will have far-reaching implications. It can cause all retail-focused and US-based staking-as-a-service businesses to cease operations.
What does staking mean for altcoins?
In recent years, the Proof-of-Stake (PoS) method for running a network has become a popular choice for developers. This is because it consumes significantly lower amounts of energy than so-called Proof-of-Work (PoW) blockchains like Bitcoin, and also has the potential to allow more people to share the rewards. For blockchains to work, decentralized applications such as Ethereum, Cardano, Polkadot, Solana, Tezos, Cosmos, and Polygon all rely on some form of allocation in some capacity. According to Staking Rewards, the total value of all assets staked on Friday was $91.8 billion worldwide.
When someone makes an investment with the expectation of a reasonable return on the work or effort of others, the SEC typically sees this as a red signal. However, the SEC has not issued any clear guidelines on which crypto assets are considered securities. According to Oppenheimer’s research, Coinbase currently controls about 15% of the market share of Ethereum assets. The current individual staking participation rate in the sector is 13.7% and continues to expand.
Is the US lagging behind in the Web3 race?
ARK Invest CEO Cathie Wood criticized the incompetence of the US authorities in a comment she made as speculation of a potential staking ban for retail customers continues to gain momentum. On February 11, Wood shared his thoughts on the potential ban on staking services provided by US-regulated central entities on Twitter. She emphasized that the rapidly developing Web3 technology sector will harm the competitiveness of the country.
So, activity moves to offshore exchanges or to self custody, self sovereignty, and self control? Decentralization wins. Great! Given regulatory arbitrage, however, US exchanges lose to foreign exchanges, not so good for US competitiveness in the crypto revolutions, in my view. https://t.co/1Lv4IqVsmn
— Cathie Wood (@CathieDWood) February 11, 2023
There is a concern whether the SEC will go after other exchanges that provide staking as a service to their consumers, similar to Coinbase. Meticulous analysts, lawyers and policy experts reviewed comments from SEC Chairman Gary Gensler on Thursday and concluded that the fundamental issue at hand is not the staking app itself, but how Kraken advertises staking.
Specifically, the SEC claimed that Kraken’s terms of service give the exchange full control of all stake tokens and the ability to “set these returns, not underlying Blockchain protocols,” at its discretion. The SEC made this claim in its lawsuit against Kraken. In addition, it has not provided any information about the company’s overall financial condition to help its clients make informed decisions regarding the possibility of Kraken’s returns in excess of those in the crypto market.
Will DeFi be the savior for altcoins?
In response to the recent action taken by the SEC, Kraken stated that it will continue to offer its crypto staking service to its users located in other countries, but through a separate company or a new Kraken subsidiary. This is touted as the most prudent way for exchanges to still participate in the staking market. But individual users will still be banned. The only option they have left will be to move to decentralized exchanges (DEX) and their own self-custody.
DEXs and self-custodies are considered regulation resistant as they operate on the Blockchain without a central authority or governance. It can be significantly difficult for the SEC to take direct action or track down users who use the service. While a complete ban of a particular web domain can do the trick, similar to blocking most torrent-based websites or portals selling illegal substances and copyrighted material from public access, a simple VPN setup will break the imposed restriction. Since it is on Blockchain where identities are fake or completely anonymous, it will be quite difficult for the agency to hijack users, unlike accessing other banned sites hosted on a central server.
Proponents of decentralization, on the other hand, are in for an enigma. Although they think this development will benefit the broader DeFi market, the lack of awareness of risk, widespread security breaches and sheer learning curve can deter some users and leave a bitter aftertaste for others.
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