Crypto exchange Kraken to shut down betting service, pay fine in US SEC settlement

Feb 9 (Reuters) – Cryptocurrency exchange Kraken has agreed to shut down its cryptocurrency betting service and pay $30 million in fines to settle with the U.S. Securities and Exchange Commission that it failed to register the program, the agency said on Thursday.

The settlement marks the SEC’s first crackdown on staking, a common service offered on both centralized and decentralized crypto exchanges. In a video message posted on Twitter on Thursday, SEC Chairman Gary Gensler said most staking providers fail to provide customers with proper disclosures, such as how a company protects a user’s assets.

“When a company or platform offers you this type of return, whether they call their services ‘lending’, ‘earning’, ‘rewards’, ‘APY’ or ‘staking’ – that relationship should come with the protection of the federal securities laws, Gensler said.

Owners of cryptoassets using a proof-of-stake blockchain can stake some of their assets to potentially take part in the process of validating transactions. In exchange for their work, validators are often rewarded with newly created cryptoassets.

Kraken offers its customers the opportunity to “stake” certain crypto-tokens to earn rewards. Their website advertises that users can earn up to 20% in annual returns if they promise to lock their assets for a certain period of time.

The San Francisco-based platform did not admit or deny the allegations in the SEC’s complaint.

In a statement, Kraken said the agreement to end its on-chain betting services will only affect US customers, and that most assets registered to the program by US users will automatically be “suspended” starting Thursday.

In a series of tweets on Wednesday, Coinbase CEO Brian Armstrong said banning staking for US retail customers would be “a terrible path for the US” Coinbase also offers a staking service to its US customers.

“We need to make sure that new technologies are encouraged to grow in the United States, and not stifled by a lack of clear regulations,” Armstrong said.

Kraken in November agreed to pay $362,000 to the U.S. Treasury Department’s Office of Foreign Assets Control to settle civil liability related to alleged violations of sanctions against Iran, and to invest an additional $100,000 in certain sanctions compliance checks.

The company’s incoming CEO told Reuters in September that the exchange had no plans to register with the SEC as a market maker, or to delist crypto tokens that the regulator has labeled as securities.

Reporting by Hannah Lang in Washington, editing by Franklin Paul and Will Dunham

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