- Who will regulate crypto in the U.S.?
- New attempts to attack crypto exchanges
- Everything to protect the people
- Staking in figures
- Consequences of a staking ban
Crypto staking remains the center of attention. Everyone is waiting for new measures to be introduced by the SEC. There are rumors in the U.S. that staking will be banned on crypto exchanges. “We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen,” Brian Armstrong, CEO of cryptocurrency platform Coinbase, wrote on Twitter.
Who will regulate crypto in the U.S.?
U.S. authorities — the Internal Revenue Service (IRS), the Securities and Exchange Commission (SEC), and Commodity Futures Trading Commission (CFTC) — have long competed for the opportunity to regulate the growing crypto market. It is still unclear which one of them will win the race because there is no definitive regulatory ownership and clarity over whether digital assets can be considered securities, property, or something else.
Taking into account all the events of 2022, including the FTX meltdown and the collapse of such lending platforms as Celsius, Voyager, and BlockFi, many experts expected the U.S. SEC to address ensuring that U.S.-based exchanges complied with local laws and were fully solvent.
New attempts to attack crypto exchanges
The U.S. SEC Chairman Gary Gensler has recently commented that crypto assets would once again be on the agency’s yearly to-do list. This promise manifested itself rather quickly. Kraken has announced it would shut its on-chain staking services for U.S. customers and pay 30 million US dollars to the SEC. This is also related to the petition to U.S. courts in which the IRS requested data on Kraken users who had not reported federal income taxes between 2016 and 2020.
This precedent makes other American exchanges, including Coinbase, susceptible to the SEC’s requests to ban staking for U.S. customers. Coinbase disclosed that the revenue of 62 million US dollars in revenue was attributable to its staking product over the three months ending September 30, 2022. In total, staking was responsible for 10% of the exchange’s revenue in the same period.
Everything to protect the people
This crackdown on centralized staking offers for U.S. customers has been advertised as a way of protecting vulnerable customers after the FTX meltdown. Given that millions of users were affected by the crisis and billions of dollars were lost, it almost seems believable.
Still, the SEC measures may backfire by driving users towards decentralized staking platforms and even offshore exchanges — a trend observed since the meltdown of Sam Bankman-Fried’s exchange.
Staking in figures
Since Ethereum’s transition to proof-of-stake, over 16 million ETH, or 13.7% of the network’s total supply, has been staked at various platforms, both centralized and decentralized. It is obvious that users would like to stake their ETH, either to contribute to the network’s security or to earn returns on their tokens.
Currently, the share of centralized staking providers is close to 25% of all staked ETH, with such exchanges as Coinbase (11.4%), Kraken (6.9%), and Binance (5.2%) among the leaders.
Even though it takes 32 ETH to be a solo staker on the Ethereum mainnet, and although there are certain technical issues of becoming a validator, many retail customers have realized that the barrier to entry is lower via centralized staking providers, such as Kraken and Coinbase.
Consequences of a staking ban
Experts believe that the SEC should stop imposing bans and restrictions and instead work on offering more clear and definitive crypto regulation. Crypto staking could be a great opportunity to regulate crypto and ensure safer storage of digital assets.
If the SEC gets rid of regulated centralized exchanges in the U.S., American customers will move to offshore exchanges which almost never comply with the Know Your Customer (KYC) and Anti Money Laundering (AML) requirements. This would hardly help to protect users.
Decentralized platforms have their risks and drawbacks, they are prone to hacking, smart contract compromise, and private key loss. Still, encouraging users to store their assets on their own instead of staking via centralized exchanges may improve crypto’s longer-term prospects. The SEC’s actions have had the opposite effect so far, with more and more people returning to the roots of what true cypherpunks believed in during the early period of crypto — absolute anonymity and independence.
Currently, American regulators keep attempting to control the rapid development of crypto and trying to keep up. However, their main instruments are wrong: trying to crack down on crypto and ban its aspects is backfiring.
Any bans should be reserved as a last resort. Such measures should be considered thoroughly and introduced only in combination with reasonable regulation. We also cannot say for sure that such bans can actually protect consumers who want to stake their crypto. What is clear, however, is that under these circumstances, both customers and developers will quickly adapt and find their own ways to continue staking — with or without the SEC.
