The SEC’s move to ban staking is expected to encourage more people to move toward decentralized options beyond the agency’s reach.
Rumors of an upcoming crypto ban came to fruition on February 9 with the Securities and Exchange Commission’s enforcement action against Kraken, which resulted in a settlement where the exchange agreed to stop its staking services for American users. The action might extend to all firms based in the United States.
The reactions were predictable subject to where you stand on crypto in general. Crypto advocates and proponents rallied against authorities and regulators who are gradually asphyxiating this flourishing sector, while the naysayers celebrated crypto’s impending demise. The advocates have it right.
Antagonistic authorities will compel crypto into friendlier jurisdictions, which will reap the involved economic benefits. The doubters have it right, as well. The event, and lots of those from 2022, is killing the crypto industry. Their glee is misplaced, nonetheless. This is a great thing.
Emboldened by the assortment of blow-ups of crypto businesses in 2022, the SEC and the Commodities Futures Trading Commission have started to adopt an increasingly harder stance with the crypto space. They have been targeting fiat on-ramps through US banks. Currently, they are targeting staking.
Brian Armstrong, the CEO of Coinbase centralized exchange, intimated on February 9 that “the SEC would like to get rid of crypto staking in the U.S. for retail customers.” A day later, Kraken already confirmed that it would be shutting its staking-as-a-service program and paying a $ 30 million fine. It now appears possibly something like a ban on staking will extend to all United States-based firms.
Armstrong rightly said in his tweets that a ban on staking “would be a terrible path for the U.S. if that was allowed to happen.” In case the United States watchdogs press too hard, they may be responsible for the United States ceding ground in the crypto sector to other nations. Better stop now since cryptocurrency firms are already leaving the US.
1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.
— Brian Armstrong (@brian_armstrong) February 8, 2023
The latest action by the SEC is even drawing criticism from within the SEC. notably, Commissioner Hester Peirce objected to the rashness of the enforcement action, saying that “using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.”
It results in uncertainty and forestalls investment. What is required is a fair and clear set of rules. Without that, American leadership in cryptocurrency will fade.
Nevertheless, the ban on staking is a great thing for cryptocurrency.
Good riddance.
Staking with an integrated business is highly adversative to what makes crypto highly special. Staking is mainly used to secure global networks like that of Ethereum, which is ideally designed to get controlled by nobody. Since firms operate under the management of governments, there is an existing dissonance between them and the processes of staking.
It might not be a problem in case businesses represented a trivial amount of total staking activity, but only Kraken and Coinbase, both domiciled in the United States, represent about 20% of the total staked ETH.
It might be great in case all the government-regulated firms accounted for significantly less than 10% of ETH’s staking or any public blockchains for that matter. It may be the case that the quickest way to achieve the change is to ban staking.
After Brian Armstrong’s tweets, decentralized staking projects’ token prices got a major boost. In that context, it will translate into an increase in their staking percentages. There was another hiccup upon the Kraken announcement. In case the SEC continues with this trend, expect to see a considerable shift away from centralized to decentralized staking services.
This forms a segment of the bigger trend the crypto sector started in 2022. When the opaque crypto industry after the business went insolvent like the falling dominoes, people started looking for some viable on-chain alternatives. Abruptly, the quaint values that defined the early crypto adopters were not so old-world anymore – for example, “not your keys, not your coins” or “don’t trust, verify.”
Buy Bitcoin NowPeople started seeking trustless platforms for things like yield and derivatives. Staking can also be added to the list as well. Interestingly, on-chain technology is now adequately mature to provide a comparable experience to centralized services. The experience will just become better as the technology continues developing quickly, and as more people keep moving their assets on-chain.
The first on-ramp exchanges like Coinbase exchange will always play an integral role in cryptocurrency, but it is quite clear that eventually, all crypto-to-crypto service intermediaries now offer will get retired in favor of superior entirely decentralized alternatives.
To those naysayers that say “crypto is dead.”
Just reply, “Yes, crypto is dead. Long live crypto.”
