Digital asset firm Kraken’s settlement with the US Securities and Exchange Commission (SEC) has left many wondering what this means for the industry’s future.
Fireblocks’ Chief Legal & Compliance Officer Jason Allegrante and Proof of Stake Alliance (POSA)’s Executive Director Alison Mangiero have the expertise and experience that allows them to provide unique insight into this development.
Fireblocks’ Chief Legal & Compliance Officer Jason Allegrante says:
- Following this news, any retail staking service provider “must be on notice that they will be subject to intense SEC scrutiny for offering these products.” The SEC has proclaimed its authority “to regulate for a while now.” Questions were “raised over the last six months about why they have failed to be more aggressive, and I believe that now, we are witnessing them be more aggressive, which should be expected moving forward.”
- This is a broader trend – in many parts, “a reaction to what we’ve seen in the crypto markets throughout the last several months – of not only the SEC, but banking agencies as well, taking steps to limit the exposure of traditional financial and retail consumers to crypto sector, which we need to monitor very carefully.”
- From an industry perspective, it is difficult “to comply accurately when there is an absence of guidance and laws that clearly apply to the industry and specific offerings.” To have the regulator come in “after already designing and launching the product and have a discussion on settling charges or discontinuing the product doesn’t provide the clarity we need to invest our resources towards in time.” We look forward “to seeing the new direction that the US is headed in.”
- In its entirety, this all has “to be understood as a constellation of things that are happening.”
He concluded:
“We’re seeing traditional finance pull back from its interaction with the crypto sector, the crypto sector that wants to be regulated by the traditional sector struggling to achieve that, and now, the SEC acting where it has the authority to clamp down on the activities within the industry.”
Proof of Stake Alliance (POSA)’s Executive Director Alison Mangiero says:
- When exchanges take it upon themselves to financialize products and exert effort to boost advertised “yields” for customers, “they remove themselves from providing purely technical services.” Validators are “not financial intermediaries.” They “provide technology services, not financial services.”
- In 2020, after working closely with the SEC, POSA “developed and published recommendations for companies participating in proof of stake protocols to accurately describe staking as a technical service.”
- These principles – “such as advising network participants to avoid providing investment advice or referring to staking as a profit opportunity, and instead encouraging them to highlight network participation and security – means that staking as a service provider should be regulated like the infrastructure providers they are – instead of as providers of a financial product.”