Kraken Fined $30 Million by Gary Gensler for Staking Violations
Some fear a much greater crypto crackdown is on the way
Crypto’s biggest supervillain Gary Gensler strikes again – this time, he’s fined Kraken exchange $30 million for “staking violations.”
What’s a staking violation, anyways?
Well, this is how Gary himself explains it in his video.
“What does stake have to do with our securities laws? That’s S–T–A–K–E, not S–T–E–A–K” Gary opens in the video.
Nice dad joke, Gary. Don’t be surprised if it falls flat as our portfolios melt and merges into a puddle with our tears.
You can watch the 3-minute video above, but to sum it up, Gary claims that exchanges mislead consumers and that any staking offerings where users can generate yield should come with “protections of the federal securities laws.”
This includes important disclosures about what they actually do with your tokens.
For example, are they trading them, co-mingling them with other businesses, or using them to execute an epic can’t-miss trade on their personal account?
The other example he uses is when an exchange is issuing new tokens that dilute the value of the original ones in exchange for staking them.
Lastly, a lot of the time, when you enter a staking program, you could be signing over ownership of your tokens to these exchanges.
That’s where the saying “Not your keys, not your coins” comes from.
Pooling a bunch of client tokens together is easy and can be a massive source of business income if you offer a yield-generating service to clients.
That shouldn’t be an excuse to mishandle customer funds, and the way Gary positions it makes sense, as there is a lot of misdirection in crypto.
But you gotta wonder if Gary really is trying to protect us or if he is clearing the runway for his friends.
Most of crypto Twitter jumped to conclusions and assumed the worst was yet to come and there was a much greater crackdown on the horizon.
Of course, everyone panicked, and the crypto market cap dropped below $1 trillion.
Kraken appears to have folded its hand in the face of Gary’s aggression. Coinbase, on the other hand, appears to be ready for a fight if need be.
So what does this mean for crypto in the near term?
Gary will probably go around with his hands out and start fining people. Before BlockFi went under, the SEC fined them $100 million. Gary has sent a stark warning to crypto exchanges all along – register with the SEC or else.
And it looks like Gary is taking the or else route. With the FTX blowup lingering, he has a very strong argument to rally support along the way.
But will this reverse affect Gary’s crusade in the long run?
Some believe that going after exchanges for offering staking will only spark greater mass adoption for DeFi and Web3 as users will be incentivized to try different protocols.
Additionally, Gary’s coworkers, like Hester Pierce, are dissenting.
Still, investors are sitting on record amounts of cash, and they will need to allocate at some point as the macro backdrop appears to be clearing up. The looming threat of SEC regulations and fines will no doubt cap the market's upside.
And the macro environment is still fractured as big tech continues to lay people off in record numbers. With so many layoffs, that’s a big source of liquidity that will continue to be sidelined for the foreseeable future. Investing in crypto is probably low on your priority list if you’ve recently been laid off.
For now, I guess we'll wait and see.