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Kraken fined $30 million for not registering staking service, Coinbase stock price drops in response.

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Kraken fined $30 million for not registering staking service, Coinbase stock price drops in response.

The U.S. compliant exchange Kraken has been fined by the regulatory authority SEC for failing to register its "cryptocurrency staking service program" and will pay a fine of $30 million. Coinbase's chief legal officer clarified "we are different," but the stock price still fell by 14%.

Pledge Services Require Registration and Disclosure

The SEC pointed out that since 2019, Kraken has been offering its cryptocurrency pledge services to the public. Kraken pools the cryptocurrency assets transferred by investors and pledges them on behalf of these investors. During this process, investors lose control over these tokens and bear the risks associated with these platforms with little to no protection measures.

SEC Chairman Gary Gensler said:

Whether through pledging, lending, or other means, cryptocurrency intermediaries offering investment contracts in exchange for investors' tokens must provide appropriate disclosures and safeguards required by our securities laws. Today's action signals to the market that pledge service providers must register and provide comprehensive, fair, and truthful disclosures and investor protections.

In addition to immediately ceasing the pledge program and paying a $30 million fine, the judgment also found Kraken in violation of Section 5 of the 1933 Securities Act and permanently enjoined them and any entities they control from directly or indirectly offering or selling securities through cryptocurrency pledge services or pledge programs without court approval.

According to Kraken's announcement, Kraken will automatically cancel non-ETH assets pledged by U.S. users, which will be returned directly to users' spot wallets. ETH will be released from the pledge after the Shanghai upgrade is completed. However, non-U.S. users of Kraken are not affected and can continue to use the services.

Coinbase Stock Price Plummets in Response

Just yesterday, Coinbase CEO Brian Armstrong claimed to have heard rumors and once again publicly appealed to regulators, stating that the staking mechanism is a very important innovation in the crypto space and allowing such incidents to occur would be a bad path for the United States.

Following the news yesterday, Coinbase's Chief Legal Officer Paul Grewal immediately tweeted that the company's on-chain staking service is fundamentally different from Kraken's. Because staking rewards are fully disclosed and determined by the blockchain protocol, and the staked assets always belong to the customers, there is no issue of ownership transfer.

According to Bloomberg's report, staking blockchain rewards accounted for 11% of Coinbase's net revenue in the third quarter of 2022, up from 8.5% in the second quarter. Coinbase is the second-largest staker on Ethereum. Yesterday, influenced by Kraken's news, Coinbase's stock price fell by 14% to $59.63 per share.