“We don’t play games,” Paul Grewal, the Chief Legal Officer at Coinbase, stated after the US Securities and Exchanges Commission (SEC) announced a settlement with Kraken over staking.
“The public shouldn’t have to parse complaints in federal court to understand what a regulator expects,” Grewal added.
SEC stated that part of staking rewards at Kraken were due to “Kraken’s strategies to obtain regular investment returns and payouts.”
“These products are basically yield products,” Grewal said, pointing out that at Coinbase it is straight staking. “Our customers have a right to their rewards. We can’t just decide not to pay any rewards at all.”
Jesse Powell, the founder of Kraken, said he thinks these differences are minor. “I don’t think that any minor differences matter to the SEC, which views all forms of custodial staking as problematic.”
Grewal however has made it clear that in his view, managed staking is not a security, stating:
“Staking is not a security. Validators form no horizontal community or commonality. There’s no vertical commonality, either. Validators don’t expect rewards from significant managerial efforts of other validators–they expect rewards primarily from their own efforts and funds.”
Kraken has stopped providing staking services to US customers, whether rich or not, with it technically currently unclear how they stop it as such because currently you can not unlock ethereum staking until the unlock upgrade sometime next month potentially.
If Kraken actually stops therefore, they will be slashed and their customers will lose a lot of money, making this a very bad timing from SEC.
It may well be that they’re stopping it for new customers, while staking offers at Kraken continue as usual in Europe and the rest of the world.
For Coinbase, they continue in US too. This is a publicly traded company and their Chief Legal Officer is of the view that staking is not a security, so Coinbase has no choice but to go to court if SEC approaches, unless they want action by their shareholders.
Kraken is not yet publicly traded. That they opted for settlement however, considering the crypto industry is and has been since 2018 under a regulatory attack, and considering settlements are SEC’s strategy of making law in effect while bypassing the courts, is surprising.
“Risk-adjusted returns,” was Powell’s reply when asked why he did not fight. That calculation was based on such returns just for his company, rather than the entire crypto industry, with Powell stating:
“Bigger balance sheet wouldn’t hurt either. They picked the bottom of the bear market, waited for us to do a 30% layoff. They have all our financials, lots of leverage. Maybe we looked weak.”
Coinbase has billions in cash, but the current SEC chair is following a strategy ‘pioneered’ by none other than Vladimir Putin. That is managed chaos.
Rather than opening proposed rulings for public consultation with a carefully thought out guidance then provided, SEC chooses to sow confusion, fear, and chaos through which they aim to effectively break their subject and make them subdue.
A strategy of subjugation in the open daylight in modern United States. “We won’t innovate for you,” peasants. We will force one rule for the rich, and another for the rest.
Coinbase and Silicon Valley however knows very well what’s going on so hopefully here too this strategy of managed chaos will spectacularly backfire as it did for Bush and the now very isolated Putin.