SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

The US Securities and Exchange Commission is stepping up pressure on the crypto sector. On February 9, the SEC reached a $30 million settlement with Kraken over a centralized staking program it offered to its users.

News of the crackdown sent the price of bitcoin (BTC) down to a three-week low as investors became wary of regulatory enforcement. The price of Ether (ETH) also corrected on the news, consolidating the worst day for the token in 2023.

While the overall crypto market tumbled after the SEC announcement, there were bright moments as decentralized tokens for liquid rates LDO, RPL and FXS quickly recovered from sharp corrections.

According to Crypto Twitter analyst Korpi, Kraken and Coinbase introduce 33% of all Ether staked, and if centralized exchanges in the US are “forced” to stop offering staking programs as a service, liquid derivatives providers could absorb that market share.

Judging by recent tweets, crypto traders are well aware of this potential outcome and this could be one of the reasons for the short-term recovery of LDO Lido, RPL Rocket Pool and FXS Frax. Let’s take a look at some fundamental data that might support their bullish thesis.

Centralized staking may be banned for US investors

The consequences of Kraken’s capitulation to the SEC could spill over to other centralized exchanges that offer staking as a service. While not all members of the Securities and Exchange Commission have agreed to the crackdown on Kraken, the settlement has baffled other companies such as Coinbase and its Earn program.

On Feb. 8, Coinbase CEO Brian Armstrong described how disastrous he thought the SEC’s rate crackdown would be for U.S. investors.

The SEC’s decision to regulate cryptocurrencies through enforcement rather than clear rules has drawn the ire of the crypto community due to its “anti-crypto” actions.

Decentralized Staking as a Service Could Solve Securities Problems

If a wider crackdown on centralized staking services follows, this staker market share could be swallowed up by decentralized providers such as Lido, Rocket Pool, and others. Following the SEC decision, Rocket Pool’s total locked-in value briefly reached $1 billion (TVL).

Lido, the largest liquid betting provider, has over $8.5 billion worth of TVL. And while the platform has not seen an initial increase in usage since the SEC ruling, there could be a big influx as users look for new places to stake their Ether.

Daily active users of Lido and TVL. Source: Token terminal

The cryptocurrency market may decline after the SEC decision, but RPL and LDO prices have risen. Within 24 hours of the Feb. 9 SEC announcement, the RPL price rose 14.5% and the LDO price rose 13.2% before correcting to $2.39.

The rise in prices seems to be due to the large whales accumulating a large number of tokens.

The growth shows that, even when the market is down, investors are betting on increased platform usage, which will result in higher fees for the organization.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

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