The Securities and Exchange Commission announced Thursday that cryptocurrency exchange Kraken would shut down its U.S. bitcoin staking operation. The Kraken exchange will pay a $30 million fine to settle an enforcement complaint alleging it issued unregistered securities.
The SEC asserts that Kraken did not register the offer and sale of its cryptocurrency staking-as-a-service program. The SEC stated that U.S. investors held crypto assets worth over $2.7 billion on Kraken’s platform, generating around $147 million in revenue for Kraken.
Numerous centralized exchanges, like Kraken and Gemini, allow consumers to stake their tokens to receive a return on digital assets that would otherwise be inactive on the platform. Typically, with crypto staking, investors store their crypto assets with a blockchain validator, which checks the correctness of blockchain transactions. As compensation for securing these assets, investors can obtain more crypto tokens.
The SEC stated that more than 135,000 unique U.S. users enrolled for Kraken’s staking platform.
It is the latest in a string of SEC actions targeting the cryptocurrency industry. It comes just weeks after the SEC asserted that Genesis and Gemini issued and sold unregistered securities.
The SEC stated that Kraken offered investors “more liquidity and fast payouts” to attract participants in its staking program. The SEC asserts that Kraken marketed and promoted the staking platform as an investment opportunity, with net income from U.S.-based users reaching over $15 million on $45.2 million in sales.
Kraken said on its website that its staking solution could generate annual returns of up to 20%. On its website, the exchange also promised to give these rewards to users twice every week.
Kraken neither admitted nor denied the claims made by the SEC.
On Thursday, Coinbase’s CEO Brian Armstrong warned that a potential SEC lawsuit against retail crypto staking would be a “bad road” for the company’s stock price.