Thursday, June 1, 2023

SEC Crackdown on US Crypto Staking Could Promote Decentralization

On April 12, the Ethereum network successfully underwent the Shepela hard fork, allowing validators to withdraw their staked ether (ETH) from the Beacon Chain after three years. In the first week of the retreat, Validators withdrew over one million ETH.

However, as of the second week, the number of ETH mined was higher than the number of ETH withdrawn, indicating that validators are reinvesting most of their ETH in mining pools.

Staking consists of temporarily locking tokens in a network that uses a Proof-of-Stake (PoS) consensus mechanism. In PoS networks like Ethereum, users who want to support the blockchain by validating new transactions and adding new blocks must stake a certain amount of cryptocurrency. In return they get rewards.

Staking ensures that the blockchain is only updated with valid data and transactions., Participants who want to increase their chances of validating new transactions offer to stake large amounts of cryptocurrency as insurance.

The fact that Ether is staking again is very positive for the Ethereum network, but its future in the United States remains uncertain., Ethereum staking is becoming more complicated for many United States-based validators, as staking service providers, especially centralized exchanges, are waging a regulatory battle with the Securities and Exchange Commission (SEC).

In February, cryptocurrency exchange Kraken settled with the SEC for $30 million and shut down its staking services for US customers. The SEC claimed that the service was considered a security and that Kraken had to obtain the necessary licenses to operate.

Today we are accusing Kraken of failing to register the offer and sale of its crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken in exchange for advertised annual investment returns of up to 21 percent. Let’s do it.

Just a day before the Shepela update, Kraken pulled its validator nodes for US customers in order to comply with the SEC order. The shutdown sparked an industry-wide debate about the future of staking services in the United States. Coinbase – one of the first publicly listed cryptocurrency exchanges in the US – also offers staking services and is trying to force the SEC to respond to a petition filed regarding cryptocurrency guidance.

Coinbase CEO Brian Armstrong claims The SEC’s efforts to ban staking service providers will lead to a ban on retail staking in the United States. This could force many cryptocurrency platforms and staking service providers to move to tax havens. At a time when the SEC is active in its enforcement action against cryptocurrency staking services, the future of ETH staking in the United States looks shaky.

Stephanie Lord Eysert, a senior director of law enforcement at crypto intelligence firm Merkel Science, told Cointelegraph that cryptocurrencies are a global entity. Therefore, Action by any particular jurisdiction will only compel service providers to move elsewhere.

“The proposed ban on cryptocurrency staking will not protect investors from fraud or scams. Rather, it will create a regulatory vacuum that will be exploited by bad actors. Instead of banning centralized staking providers, regulators should focus on addressing the lack of centralized guidance.” Should be paying attention. And decentralized staking options,” he said.

Staking as a Service, Threatened in the US

US is home to the majority of Ethereum blockchain node merchants, Of the 9,849 active nodes, 5,214 are in the US, followed by Germany with 1,679 and Japan with 277. The latest data from Etherscan indicates that US node operators are down 20% in the past week.

ETH nodes by country. Source: etherscan

William Krause, a partner at law firm Fisherbroyles, told Cointelegraph that the SEC’s action against Kraken reflects the commission’s status as a service.

He said this could prompt US providers to respond in a number of ways: some would remove the service entirely, while others could make changes to the way the service is provided or describe it publicly. Some providers may decide not to change anything. However, the settlement has reduced ambiguity about the stake, and providers should carefully consider the SEC’s position going forward, he added:

“The United States has not banned staking as a service. Instead, the settlement with Kraken indicates that the SEC considers at least some forms of staking to be within its jurisdiction. The market reaction remains to be seen, But we can reasonably expect a shorter, and perhaps more limited, steak-as-a-service offering for US retail consumers.”

Cointelegraph Head of Tax Danny Talwar told Cointelegraph that centralized staking providers account for nearly a quarter of all staking ETH, with Coinbase (11.4%), Kraken (6.9%) and Binance (5.2%) leading the way.

Talwar said If the SEC goes ahead with its enforcement action, service providers will be forced to look outside the United States to provide their services.

“If offshore exchanges that don’t know your customer or anti-money laundering rules end up being the main beneficiaries of SEC crackdowns on centrally regulated, national exchanges,” consumer protection “this could be the least likely outcome,” They said.

The Rise of Decentralized Staking

As US regulators crack down on staking services, cryptocurrency advocates are trying to convince regulators that interest on high-yield loans offered by centralized entities are not the same as the rewards of staking on the Ethereum blockchain.

Staking cryptocurrencies on blockchains such as Ethereum contributes to the daily verification of transactions. Therefore, Ethereum staking is different from borrowing rewards such as those offered by BlockFi and Celsius.

In addition, the SEC is trying to flag all types of staking services under a standard flag, Konstantin Boyko-Romanovsky, CEO of staking service provider Allnodes, told Cointelegraph.

Boyko-Romanovsky said that banning centralized exchanges from offering staking services would further strengthen decentralization. He also said that the government’s approach could stifle adoption, as many cryptocurrency newcomers to the US rely on centralized entities like Coinbase for services.

He added that staking pools may become more popular with retail stakers, explaining:

“Staking pools will experience increased participation from the United States as the staking pool concept democratizes access to staking opportunities and associated rewards. However, it is difficult to estimate the exact extent of this potential flow as it will depend on a number of factors. Including mainstream acceptance and adoption, regulatory policies, scalability and continuous innovation.

Those interested in betting can find alternative means, he added. “Regulators should focus on creating precise and clear definitions for new and innovative concepts such as staking. This will likely benefit customers more than trying to ram crypto into existing fiat currency molds”Said.

Problems with centralized staking services may favor decentralized staking services and staking pools. After Kraken removed US-based validator nodes, most of these validators moved to Lido Finance, a decentralized staking pool service provider.

Although it may help in decentralization, SEC Stance on Cryptocurrency Staking Could Spell Trouble for US-Based Service Providers, However, it remains to be seen whether companies like Coinbase are uprooted and move overseas, giving up significant market share in their home markets, or struggling to comply with SEC guidelines and US securities laws.

the explanation: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be construed as financial advice or investment recommendation. All investments and commercial dealings involve risk and it is the responsibility of each individual to conduct appropriate research before making any investment decision.

Nation World News Desk
Nation World News Desk
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