(Reuters) – Crypto exchange Kraken agreed to suspend its cryptocurrency staking service and pay $30 million in penalties to settle allegations by the U.S. Securities and Exchange Commission that it failed to register the program, the agency said on Thursday, in a move that can cause headaches for platforms with similar offerings.
The settlement marks the SEC’s first crackdown on staking, a common service offered on both centralized and decentralized crypto exchanges, including most of the major exchanges in the US such as Coinbase and Binance US.
In a video message posted on Twitter Thursday, SEC Chairman Gary Gensler said most staking providers fail to provide customers with accurate disclosures about how a company protects a user̵7;s staked assets. Those providers should register their staking services with the SEC, he said.
“When a company or platform offers you this kind of return, whether they call their services ‘lending’, ‘earning’, ‘rewards’, ‘APY’ or ‘staking’ – that relationship should come with the protection of federal securities laws,” Gensler said.
Owners of crypto assets using a proof-of-stake blockchain can stake some of their assets to potentially participate in the process of validating transactions. In exchange for their work, validators are often rewarded with newly created crypto assets.
Kraken offers its customers the ability to “stake” certain crypto tokens to earn rewards. Its website advertises that users can earn up to 20% in annual returns if they promise to lock in 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 its agreement to end its on-chain staking services would only affect US customers.