REGULATION

Kraken Incident Overview: Founder's Thoughts, Rise of Staking Protocols, SEC Chairman's Educational Video

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Kraken Incident Overview: Founder

The article summarizes various opinions on the Kraken incident, the potential rise of liquidity mining derivatives protocols due to regulations, and the thoughts of Kraken's founder after the incident. He believes that this is essentially an enforcement action to strengthen regulations on the surface after the FTX incident, and that Kraken's staking services are not much different from other exchanges, implying that there may be more similar regulatory actions in the future.

a16z: Will Not Affect Other Centralized Exchanges

a16z's legal counsel, Miles Jennings, stated:

We believe that the settlement between Kraken and the SEC will not have any impact on the collateral services introduced by those exchanges on the premise of avoiding securities laws. However, we are disappointed that the SEC chairman only focuses on occasional enforcement actions rather than regulation, continuing to pay attention to headlines rather than fulfilling the core mission of protecting investors.

Venture Capital Partner: Double Standard Treatment of FTX

Adam Cochran pointed out that the relationship between the SEC and SBF is unusual, granting many exceptions to FTX, while refusing to provide guidance to the most compliant exchanges in the U.S., Kraken and Coinbase, opting for enforcement over regulation.

He is puzzled why FTX had no regulatory issues before bankruptcy. He urged everyone to call their state senators and congressional representatives to investigate Gensler's protection of FTX and the SEC's years of refusal to provide guidance on cryptocurrencies.

Bitcoin Community Cheers

Most comments from the crypto community are largely critical of the SEC, but the Bitcoin community is an exception, citing segments where the previous two chairmen stated that Bitcoin is a commodity, not a security:

As well as Gensler's emphasis on the importance of self-custody:

Let's see what else Gensler said in the latest video.

SEC Chairman: Insufficient Investor Disclosures

Gensler first explained the collateral mechanism, stating that as collateral can be complex and time-consuming, crypto companies started offering collateral services, allowing service providers to commingle all users' collateral funds and exaggerate higher returns.

Therefore, regardless of whether service providers claim their services are for lending, earning, rewards, or collateral, such products should be regulated by federal securities laws, and investors should receive full disclosure of information, such as:

  • Exactly how much profit should users receive?

  • Is the service provider actually lending users' collateral?

  • Are tokens being used for lending, trading, or mixed with other businesses?

  • Users accepting the service represent the transfer of token ownership to the service provider

Rise of Liquidity Collateral Derivatives?

Some in the community mentioned the possibility of a slight, rise in centralized collateral models and the emergence of liquidity collateral derivatives.

Crypto investor and analyst Miles Deutscher mentioned:

  • Ankr ANKR

  • Lido DAO LDO

  • Frax Share FXS

  • Rocket Pool RPL

Bankless also mentioned SSV.network SSV in addition to LDO and RPL.

Except for RPL, the prices of the other tokens have doubled since the beginning of this year, with SSV rising over 200%.

Founder's Sardonic Remarks

Kraken founder Jesse Powell responded to many community comments, suggesting that the SEC's actions seem carefully planned.

Out of consideration for risk and return, Kraken ultimately did not resort to legal action. The SEC chose to strike at the bottom of the bear market, when we were downsizing by 30%, knowing all our financial situations. This enforcement action is more related to the FTX incident than any issues with Kraken or collateral services.

He also hinted at possible future enforcement actions by the SEC:

I can't see any substantive difference between Kraken and other competitors. I also believe that any differences are irrelevant to the SEC because the SEC believes that all forms of custodial collateral are problematic. I hope that the SEC will proceed with their "consistent standards" in future U.S. settlements and litigation.

Some in the community asked how new exchanges can survive?

Jesse Powell sarcastically replied: "I heard that donating a few hundred million dollars of user funds to politicians seems to work."