Following the Securities and Exchange Commission (SEC)’s crackdown against Kraken’s staking service on Thursday, one of its members is railing against her agency’s decision.
Hester Peirce – aka ‘Crypto Mom’ – issued a statement on Wednesday arguing that the SEC’s enforcement action is neither “efficient nor fair,” and that exchanges were never given a realistic pathway to registration, to begin with.
The SEC’s Enforcement Style
According to Peirce, the fundamental question is not whether Kraken’s staking product should have been registered with the SEC, but whether, such registration was at all possible.
“In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline,” she explained. When it comes to staking-focused products, questions around specific disclosures, accounting quirks, and whether to register the staking program on a whole or token-by-token basis, still loom large.
Coinbase CEO Brian Armstrong was quick to back up the commissioner’s claims on Thursday, stating that his exchange – which offers a similar product – was given “no way to register,” and that the SEC’s “offer” was “disingenuous.”
Staking services let customers pool their assets together into giant staking nodes, which generate varying amounts of yield across different proof of stake blockchain protocols. The profits reaped from those services are shared between both customers and the staking providers they use.
Armstrong warned on Wednesday that regulators were beginning to take aim at retail staking, and argued that staking does not constitute a securities transaction – but to no avail. The SEC terminated Kraken’s staking business and fined them $30 million on Thursday, warning that its actions “make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”
Commissioner Peirce, however, doubts that the enforcement action will be productive for anyone.
“Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating,” she said. “Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it.”
On the contrary, Peirce believes the SEC has merely shut down a program that once “served people well” – one that Kraken will never be able to revive later, register or not.
“A paternalistic and lazy regulator settles on a solution like the one in this settlement,” she concluded. “Do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.”
What Does Gensler Think?
In conversation with CNBC on Friday, SEC chairman Gary Gensler responded to criticisms of his agency’s actions, including Peirce’s, which claimed that enforcement was inappropriate.
“We have for decades used the various tools Congress has given us to protect the investing public and if that means somebody is breaking the law, non-compliant, we do use enforcement,” he said.
The chairman also dismissed the idea that registration is somehow confusing or untenable for crypto firms as a “talking point,” used by companies to dodge the law. “They know how to do this. They are just choosing not to do it,” he continued.
The SEC chairman has repeatedly warned that the vast majority of cryptocurrencies are likely securities. Those using a proof of stake consensus mechanism, he said, are even more likely to qualify – possibly including Ethereum.