The crypto community has been agitated this week amid the rumors that regulators intend to ban crypto staking. “We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers,” Coinbase CEO and founder Brian Armstrong wrote on February 8
One of the managers of Lido Finance, the largest crypto staking app in DeFi, has drawn attention to the fact that service providers, including Lido, are facing new consequences of the SEC’s crackdown on the sector.
“I have been getting a lot more questions about ‘does this impact Lido, what are your thoughts on this?’ I personally think this is a net benefit for on-chain permissionless liquid staking or staking providers, but it really depends on what the final resolution is,” commented Jacob Blish, head of business development at Lido DAO.
What is crypto staking?
Staking is a way to earn money by supplying liquidity on decentralized exchanges. By locking their assets in an app, users earn interest and receive other rewards.
Staking serves not only as a means of income. Many traders use funds borrowed from staking pools for trading on exchanges. As a result, one group of users earn money by supplying liquidity, and another one pays interest.
Staking anonymity
Users of DeFi apps are able to trade, lend and borrow crypto without intermediaries. Often this process is anonymized by using automated protocols. Many representatives of the DeFi community claim that the autonomy of DeFi takes such apps outside regulator guidelines because no individual benefits directly.
According to Jacob Blish, if the US regulatory authorities decide that no US individual can interact with staking services, then “we have a different problem.”
Staking means that users profit by locking up their coins in order to help order transactions on various blockchains, including Ethereum.
Centralized exchanges, including Coinbase Global Inc., Kraken and Binance, have started using staking products to diversify their revenue.
“The most disappointing thing is we as an industry keep getting asked for transparency, but then me as a US citizen, I get no transparency and how [regulator’s] decision-making process is going,” Blish commented.
Centralized and decentralized platforms allow users stake their coins without specialized equipment or investing large amounts of money. According to data by Staked and Kraken, the total value of staked assets amounted to 42 billion US dollars as of the end of 2022.
A risk for DeFi
Blish explains that, unlike centralized platforms such as Kraken, Lido serves as a “plumbing” function in providing staking services.
“It’s a software. A user either says I choose to engage with the service that is being offered or I don’t. And the user has full control,” Blish explained. He added that withdrawals of staked Ether tokens are still unavailable on Ethereum blockchain, but as soon as they become enabled, users will get complete control of their funds.
Lido is governed by the Lido DAO. Its members make decisions on the most important parameters of Lido protocol by voting. Lido’s codes are open-sourced and publicly available. Blish added that contributors to the DAO are based around the globe. He himself lives in New York.
“The biggest risk I personally see as a US-based person is if they come down and say you can no longer even interact with or contribute to these types of protocols,” Blish commented. “Then me as a contributor to the DAO, does that mean I can’t work on Lido anymore? Do I have to go leave and do something else?”
