US Securities and Exchange Commission (SEC) settled with Kraken on Feb. 9 for actions taken against the exchange’s bounty program. Kraken paid a $30 million fine and agreed to stop the program.
Put aside for a moment the irony that the SEC is after a solvent firm in the crypto space with a decade-long reputation as a good actor. The kraken was help settle disputes with verified Bitcoin (BTC) claimants after the hack of rival exchange Mt.Gox over a decade ago. He invented the use of Merkle Root data to create verifiable evidence of reserves. This allowed clients to effectively crowdsource asset audits on the balance sheet side, checking what is in their account according to the network.
And while Sam Bankman-Fried urged customers to store their tokens on FTX for obvious reasons, Kraken founder Jesse Powell has always been the “not your keys, not your coins” guy. Meanwhile, the SEC was sleeping on FTX, Terra, and Three Arrows Capital. This week, the Securities and Exchange Commission acted like a cop who stops a soccer mom at work and tosses her a book to crack down on crime following a series of robberies.
100% yes, it happened / will happen and 100% yes, we will be forced to comply. If you are worried about this, do not store your funds in any centralized/regulated custodian. We cannot protect you. Get your coins/cash and trade p2p only.
— Jesse Powell (@jespow) February 18, 2022
We need to put aside other political hypocrisy in this case, such as politicians denouncing proof-of-work (PoW) blockchains but now seeking to outlaw betting on proof-of-stake (PoS) blockchains. Or that Kraken tried to comply with the SEC by applying for a license for an alternative trading system, but received crickets in return.
The Securities and Exchange Commission emphasized that Kraken’s staking program is custodial and pools investors’ assets. Some on Twitter were quick to comment that this is actually great news for the cryptocurrency. “Hey, look, SEC Chairman Gary Gensler echoes our motto “not your keys, not your coins.” It just means more decentralization of staking on PoS blockchains.”
The staking ban is another nail in the crypto coffin – and that’s a good thing
Not so fast. Lido and Rocket Pool are innovative alternatives to centralized staking exchange programs, but they also pool tokens. Pooling is required for most retail investors to stake in Ethereum as the minimum stake is 32 Ether (ETH) (~$50,000). The SEC textbook on enforcement against Kraken will eventually be used against these protocols. The SEC is adept at twisting the definition of security in the law to cover all sorts of crazy things, from selling chinchillas to online gambling and orange groves. The SEC will eventually apply its script to more decentralized staking protocols if the founders are not anonymous enough.
It would be a mistake to assume that Gensler believes in the cypherpunk philosophy behind the “not your keys, not your coin” motto. SEC proposed ALT regulation reforms last year that will force developers who code smart contracts to register as exchanges demonstrates that he views decentralized finance (DeFi) best as it is not possible.
From the practice of financial regulators and the White House, it becomes clear that the implication of the administration’s policy towards cryptocurrency is that it should be strangled. White House vs Proof of Work; The Securities and Exchange Commission is busy delegating proof of stake, and banking regulators are using sophisticated verification tools to encourage banks to deny bank account access to anyone with “crypto” in their name, even if the client in question does not actually own the cryptocurrency. . .
My story of the SEC story “I told you so” on FTX
By all means, if your proof-of-work chain is going to operate more securely, efficiently, or fairly under a proof-of-stake system, make the transition, as Ethereum did. But don’t switch to Proof-of-Stake in the hope that it will protect you from regulatory or political risks, because it doesn’t.
As a professor of securities law, I can put on my analytical hat and find some aspects of the Kraken staking reward program that increase the risk of being recognized as a security, especially some promotional messages. But this does not mean that the program should be terminated or that a fine of this kind is justified if there was no fraud or harm to investors.
Instead, a working set of rules should be developed for custodial intermediaries offering this unique financial product, as the SEC has done in the past for asset-backed securities, real estate investment funds, limited liability partnerships, oil managers, and so on. papers. lawyers working in the crypto space who would help the SEC write the rulebook today if given the chance. They could do so through an open SEC request for comment on cryptocurrency regulation, as I urged Gensler to accept it when I advised him. SEC Commissioner Hester Pierce’s disagreement with this penalty also requires a set of reasonable rules.
Until that becomes possible, the only hope for crypto is continued legal issues with administrative overreach and protocol developers who remain loyal to cypherpunk. philosophy Timothy May.
This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are those of the author only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
Credit : cointelegraph.com
