The US Security Exchange Commission (SEC) knives are out for staking cryptos.
“Washington D.C., June 6, 2023 —
The Securities and Exchange Commission today charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.”
“The Securities and Exchange Commission today charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency”
What does staking crypto mean?
Staking cryptos is the reward received by the crypto investor for lending the crypto for a specified time period. The alternative is to hold the crypto in a wallet and earn nothing.
Why do only some cryptocurrencies have staking?
The largest cap, Bitcoin, does not allow staking. Here is the background story of why this is so.
Cryptocurrencies are typically decentralized, which means there is no central authority governing them.
Instead, they use a consensus mechanism so that all the computers in a decentralized network arrive at a correct answer without it being given to them by a central authority like a bank or a credit card company.
“Staking cryptos is the reward received by the crypto investor for lending the crypto for a specified time period”
Proof of Work, the network uses a sizable amount of processing power to solve problems like validating transactions between strangers on opposite sides of the planet and making sure nobody is trying to spend the same money twice. Part of the process involves “miners” all over the world competing to be the first to solve a cryptographic puzzle. The winner earns the right to add the latest “block” of verified transactions onto the blockchain — and receives some crypto in return.
Bitcoin is a blockchain which functions like a bank’s ledger, tracking incoming and outgoing transactions) Proof of Work is a scalable solution. But for something more complex like Ethereum — which has a huge variety of applications including the whole world of DeFi running on top of the blockchain — Proof of Work can cause bottlenecks when there’s too much activity.
Staking cryptos were attractive during high inflation when bond yields and interest rates on deposits were negative.
“The rise of international sanctions is pushing foreign countries away from holding their reserves in USD” – Win Investing
Could the SEC crackdown on crypto staking be politically driven?
SEC is a branch of the government, so it has an unwritten role to defend USD hegemony, particularly the treasury market, which finances the public deficit. The government will ruthlessly crush any entity or system that threatens its rule, and the staking of crypto is a potential threat to rule by the fiat system. Interest on a deposit account, bond yields, and stock dividends are permitted because the investor is using a central bank currency system.
The weaponizing of the USD, sanctioning SWIFT payment systems and now cracking down on crypto staking underscores the sign of the times, ever more overreaching regulations and repressive financial system clinging to its hegemony throne.
But sanctioning SWIFT and weaponizing USD against states deemed political foes is accelerating the rise of a rival BRIC monetary system, thereby weakening hegemony.
The rise of international sanctions is pushing foreign countries away from holding their reserves in USD.
Moreover, on a micro-scale, the SEC crackdown on crypto staking will send crypto staking onto decentralised exchanges.
“Rather than banning centralized staking providers, regulators should focus on addressing the lack of guidance around both centralized and decentralized staking options”
– Stephenie Lord Eisert
Staking is an important revenue stream for crypto exchanges
Stephenie Lord Eisert, senior director of law enforcement at crypto intelligence firm Merkel Science, told Cointelegraph that cryptocurrencies are a global entity. Thus, a clampdown by one particular jurisdiction would only force service providers to move elsewhere.
The proposed ban on crypto staking will not protect investors from fraud or scams. Instead, it will create a regulatory void that will be exploited by bad actors. Rather than banning centralized staking providers, regulators should focus on addressing the lack of guidance around both centralized and decentralized staking options,” she said.
So regulations banning crypto staking will see the rise of decentralized staking.
Crypto investors interested in staking will likely find alternative means.
But US-based centralized crypto providers will be worse impacted by the SEC’s crushing stance on crypto staking.
These crypto exchanges are now faced with two options: stay and wither on the vine or escape to crypto-friendly climates, and it is a no-brainer that they will choose the latter.
Coinbase, the US’s largest crypto-centralised exchange, is looking at Hong Kong.
Meanwhile, as the SEC clamps down on staking services, crypto proponents are trying to convince regulators that high-yield lending interests offered by centralized entities and staking rewards on the Ethereum blockchain are not the same.
Staking crypto on a blockchain like Ethereum contributes to daily transaction verification. So, Ethereum staking differs from lending rewards like those offered by BlockFi and Celsius.
But the SEC is likely to brand all kinds of staking services under a standard banner.
So prohibiting centralized exchanges from offering staking services would further enhance decentralization and push established centralized crypto exchanges abroad.
The SEC’s anti-crypto staking stance could tighten US capital flows as many newcomers to crypto in the US rely on centralized entities such as Coinbase for staking services.
In conclusion, we think that the regulations banning crypto staking could accelerate the decentralisation of cryptocurrencies.
Put simply, this is not the beginning of the end of cryptos but the evolution of the decentralisation of cryptocurrencies.
Overreaching regulations could result in Web 3.0 technologies being developed elsewhere handicapping US leadership in blockchain technology.