Crypto exchange Kraken will discontinue its staking services for U.S. residents as part of a settlement with the SEC, according to a press release from the regulator on Feb. 9.
The U.S. Securities and Exchange Commission charged Kraken with failing to register its cryptocurrency staking service as a security offering.
The regulator said Kraken had offered its staking service to the general public since 2019. Users could deposit their crypto holdings with the program, and Kraken advertised rewards as high as 21% for those who participated in the offer.
The SEC alleged that participants lose control of their assets and take on risk “with very little protection” when using Kraken’s staking service. It also complained that Kraken determines user rewards separately from the staking mechanism of the underlying blockchains — and as a result, does not sufficiently disclose to users how it determines rewards.
Kraken has now agreed to settle with the SEC over those charges by halting the offer of its staking service and by paying $30 million in various fines and penalties. Kraken has also agreed to the entry of a final judgment that, pending court approval, will permanently enjoin or restrict it from offering securities through staking services in the future. The company will not need to admit or deny the SEC’s allegations as part of the settlement.
Kraken has confirmed that it will end the staking service for users in the U.S. and will automatically unstake those assets. It said that it would continue to offer staking to non-U.S. users and that the service would continue uninterrupted.
The news comes shortly after reports that Kraken has failed to comply with a summons from the IRS that seeks information on customer identities and transactions. The U.S. filed a petition to enforce that summons on Feb. 3. That action continues from efforts to serve a summons dating back to 2021 and seems to be unrelated to the SEC’s actions today.
Yesterday, Coinbase CEO Brian Armstrong said that his company had heard rumors that the SEC intends to impose a ban on retail staking services.
Edit: This article was updated to include information from Kraken’s official announcement.