Will the SEC Crackdown on Staking Prove to Be a Win for DeFi?

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The Securities and Exchange Commission (SEC) seems determined to attack crypto-staking services after filing charges against Kraken. But what will the consequences be for DeFi?

Crypto staking is again making headlines after Coinbase Chief Executive Officer (CEO) Brian Armstrong condemned the restrictions by the SEC.

Crypto exchange Kraken was under SEC investigation for offering unregulated securities. Eventually, Kraken settled these charges with SEC closing its staking facilities and paying $30 million as a fine.

The news led the community speculating if decentralized finance (DeFi) will become the biggest beneficiary from this crackdown on centralized exchanges. 

Staking Service Provides Will Have to Register With the SEC

Centralized providers like Binance, Coinbase, and Kraken offer staking services which allow investors to earn interest by locking capital on exchanges.

These exchanges put the funds in an on-chain staking pool of blockchains, like Ethereum, for validating transactions. Afterward, they distribute the on-chain staking earnings to the users after deducting their fees.

According to data from Statista, Kraken was the third-largest staking pool for Ethereum. It deposited over one million Ethereum, making up 8.32% of the total stake.

Source: Statista

As a result, Kraken will have to eventually shutter its staking services and pay a $30 million fine to settle the SEC charges.

The SEC chairman Gary Gensler says: “Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws. Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”

A Win for Decentralization?

DeFi protocols provide anonymity to users through smart contracts and other automation. For example, if person A is lending money to person B through DeFi, they don’t even need to know each other’s real names.

Due to its nature, it is challenging for regulators to clamp down on DeFi. Hence, the community believes that it could be a win for decentralized staking providers.

Henry Elder, of Wave Financial, told Bloomberg, “This is a huge gift to decentralized staking providers like Lido and Rocket Pool. Their competitive advantage is an innate resistance to regulatory action – something that mattered little in the absence of such action.”  

The DeFi crypto market cap has increased by 11.13% in the past 24 hours, according to data from CoinMarketCap.

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BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.

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