{"id":551862,"date":"2023-02-14T21:36:04","date_gmt":"2023-02-14T18:36:04","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/expect-the-sec-to-use-its-kraken-playbook-against-staking-protocols\/"},"modified":"2023-02-14T21:36:04","modified_gmt":"2023-02-14T18:36:04","slug":"expect-the-sec-to-use-its-kraken-playbook-against-staking-protocols","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/expect-the-sec-to-use-its-kraken-playbook-against-staking-protocols\/","title":{"rendered":"# Expect the SEC to use its Kraken playbook against staking protocols"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a279af425afa\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a279af425afa\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/expect-the-sec-to-use-its-kraken-playbook-against-staking-protocols\/#%E2%80%9D_Expect_the_SEC_to_use_its_Kraken_playbook_against_staking_protocols_%E2%80%9C\" >&#8221; Expect the SEC to use its Kraken playbook against staking protocols &#8220;<\/a><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9D_Expect_the_SEC_to_use_its_Kraken_playbook_against_staking_protocols_%E2%80%9C\"><\/span>&#8221; Expect the SEC to use its Kraken playbook against staking protocols &#8220;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjMtMDIvNTIxMzJhMTktNzU1Ny00ZGQ2LWFhMGEtNDViZTAwNjJhYjU3LkpQRw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-4bbf85c5>The United States Securities and Exchange Commission (SEC)<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.sec.gov\/litigation\/complaints\/2023\/comp-pr2023-25.pdf\"> settled<\/a><u> <\/u>with Kraken on Feb. 9 for an action taken against the exchange\u2019s staking rewards program. Kraken paid a $30 million fine and agreed to halt the program.<\/p>\n<p>Set aside for a moment the irony that the SEC is going after a solvent firm in the crypto space with a decade-long reputation as a good actor. Kraken has been <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.newsbtc.com\/news\/kraken-to-help-settle-verified-mt-gox-bitcoin-claims\/\">helping<\/a> settle verified Bitcoin (BTC) claimants from the hacking of rival exchange Mt. Gox over a decade ago. It invented the use of Merkle Root data to create verifiable proof of reserves. It allowed customers to effectively crowdsource audits of the asset side of the balance sheet by verifying what\u2019s in their account against data on-chain. <\/p>\n<p>And while Sam Bankman-Fried urged customers to keep their tokens on FTX for obvious reasons, Kraken founder Jesse Powell has always been a \u201cnot your keys, not your coins\u201d guy. Meanwhile, the SEC was asleep on FTX, Terra and Three Arrows Capital. This week the SEC acted like a beat cop who pulls over a commuting soccer mom and throws the book at her to act tough on crime after a streak of robberies.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">100% yes it has\/will h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>en and 100% yes, we will be forced to comply. If you&#8217;re worried about it, don&#8217;t keep your funds with any centralized\/regulated custodian. We cannot protect you. Get your coins\/cash out and only trade p2p.<\/p>\n<p>\u2014 Jesse Powell (@jespow) <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/jespow\/status\/1494462097161220104?ref_src=twsrc%5Etfw\">February 18, 2022<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script>We have to set aside other political hypocrisy in this affair, like politicians decrying proof-of-work (PoW) blockchains yet now seeking to outlaw staking on proof-of-stake (PoS) blockchains. Or that Kraken tried to come into compliance with the SEC by applying for an Alternative Trading System license but got crickets in response.<\/p>\n<p>The SEC emphasized that Kraken\u2019s staking program was custodial, pooling investor assets together. Some on <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Twitter<\/a> were quick to comment that this is actually great <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">news<\/a> for crypto. \u201cHey, look, SEC Chairman Gary Gensler is parroting our motto of \u2018not your keys, not your coins.\u2019 This just means more decentralization of staking in PoS blockchains.\u201d<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Staking ban is another nail in crypto\u2019s coffin \u2014 and that\u2019s a good thing<\/em><\/strong><\/p>\n<p>Not so fast. Lido and Rocket Pool are innovative alternatives to centralized exchange staking programs, but they also pool together tokens. Pooling is essential for most retail investors to stake in Ethereum due to the minimum stake of 32 Ether (ETH) (~$50,000). The SEC\u2019s enforcement playbook against Kraken will eventually be used against those protocols. The SEC is adept at warping the definition of security in the statute to cover all sorts of crazy things, from sales of chinchillas to online gambling to orange groves. The SEC will eventually apply its playbook to more decentralized staking protocols if the founders aren\u2019t sufficiently anonymous. <\/p>\n<p>It is a mistake to assume that Gensler believes in the cypherpunk philosophy behind the motto \u201cnot your keys, not your coin.\u201d The SEC\u2019s<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.sec.gov\/rules\/proposed\/2022\/34-94062.pdf\"> proposed<\/a> reforms to regulating alternative trading systems last year \u2014 which would force developers who write smart contract code to register as exchanges \u2014 demonstrates how he views decentralized finance (DeFi) better than anything, as this is impossible.<\/p>\n<p>It\u2019s becoming clear from a pattern across financial regulators and the White House that the subtext in the administration\u2019s policy toward crypto is that it should be choked off. The White House is against proof-of-work; the SEC is hitting proof-of-stake delegation, and the banking regulators are using subtle tools of examination to encourage banks to deny bank account access to anyone with \u201ccrypto\u201d in their name even if the customer in question doesn\u2019t actually hold crypto.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>My story of telling the SEC \u2018I told you so\u2019 on FTX<\/em><\/strong><\/p>\n<p>By all means, if your proof-of-work chain would operate more securely, effectively, or fairly under a proof-of-stake system, make the transition like Ethereum did. But don\u2019t switch to proof-of-stake out of some hope it will protect you from regulatory or political risk because it won\u2019t. <\/p>\n<p>As a securities law professor, I can put on my analysis hat and find some aspects of Kraken\u2019s staking rewards program that increased the risk of it being deemed a security, particularly some of the advertising communications. But that doesn\u2019t mean the program should end or that a fine of this nature is warranted when there has been no fraud or investor harm.<\/p>\n<p>Instead, a working rule set for custodial intermediaries offering this unique financial product should be drafted, as the SEC has done in the past for asset-backed securities, real estate investment trusts, oil firm master limited partnerships, etc. There are legions of securities lawyers working in the crypto space who would help the SEC write the rulebook today if given the opportunity. They could do so through an open SEC call for comment on crypto regulation, as I urged Gensler to adopt when I advised him. SEC Commissioner Hester Peirce\u2019s dissent over this fine also calls for a set of reasonable rules. <\/p>\n<p>Until that is possible, the only hope forward for crypto is ongoing legal challenges to administration overreach and protocol builders that stay true to the cypherpunk <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/groups.csail.mit.edu\/mac\/classes\/6.805\/articles\/crypto\/cypherpunks\/may-crypto-manifesto.html\">philosophy<\/a> of Timothy May.<\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>J.W. Verret<\/strong> is an associate professor at the George Mason Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board\u2019s Advisory Council and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.<\/div>\n<\/div>\n<p class=\"post-content__disclaimer\"><em>This article is for <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a> information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more News articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/expect-the-sec-to-use-its-kraken-playbook-against-staking-protocols\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Expect the SEC to use its Kraken playbook against staking protocols &#8220; The United States Securities and Exchange Commission (SEC) settled with Kraken on Feb. 9 for an action taken against the exchange\u2019s staking rewards program. Kraken paid a $30 million fine and agreed to halt the program. Set aside for a moment the&#8230;<\/p>\n","protected":false},"author":1,"featured_media":551863,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/s3.cointelegraph.com\/uploads\/2023-02\/52132a19-7557-4dd6-aa0a-45be0062ab57.JPG","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74863,74983,74898,75269,71511,55229,70934,67874],"class_list":["post-551862","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-cryptocurrencies","tag-decentralization","tag-sec","tag-us-government","tag-government","tag-law","tag-regulation","tag-united-states"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/551862","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=551862"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/551862\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/551863"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=551862"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=551862"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=551862"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}