The United States cryptocurrency exchange firms Payward Ventures Inc., and Payward Trading Ltd, better known as Kraken was charged with a fine of $30 million by the Securities and Exchange Commission for the charge of failing to register their offer and sale of crypto asset stalking-as-a-service program.
Through their programs, the investors transferred crypto assets to the company for stalking and in return for their involvement, the investors were guaranteed an investment return of as much as 21 percent annually.
As their response to the charges raised by the SEC, both the Kraken firms have agreed to put a sudden stop to offering or selling securities through any kind of crypto asset staking programs and also to pay a fine of $30 million for charges like prejudgement interest, civil penalties, and disgorgement.
As per the complaints raised by the SEC, the firms were actively involved in offering and selling their crypto asset staking service to the general public.
The crypto exchange firm had around $2.7 billion in their crypto assets in staking programs s of April 2022. They also offered their investors an annual investment return of 21%.
The staking programs provided by cryptocurrency exchange firms like Kraken involve the process of locking up crypto assets transferred by the investors and the firm stakes the asset on behalf of the investor.
Through the process of staking, the firm actually locks up its crypto assets in a blockchain validator. While doing so, they will be rewarded with new tokens if their staked coin becomes a part of the process for validation data for blockchain. The reward received by the validator is what is being shared by the investor.
According to a press release by the SEC, when an investor becomes actively involved in the process of staking by providing their tokens to any staking-as-a-service providers, what actually happens is that the investor completely loses all the control that they have over their asset or token.
They also take on the risks that are associated with the platform. The protection that the investor has against these risks in such situations is also very minimal.
According to the complaint by the SEC, the staking service provided by Kraken was an unlawful offer and sale of securities.
As the service was an unregistered offering the people who were involved in the staling, the investors, were not provided with any material information about the staking process of Kraken like the risks in making the investment, the fees charged by the firm in doing the service and also the financial status and stability of the company that was actively involved installing and forgetting the service.
The Fate Of Kraken’s Customers
In light of the charges accused against Kraken by the SEC, the firm agreed to the settlement without denying or admitting the charges raised by the SEC. After the news about the charge, Kraken released a statement that mentioned the fate of their U.S. and non-U.S. customers.
As power the statement, the company will end all their staking services for their United States clients. As for their non-U.S clients, the company will provide their staking services through another subsidiary platform.
The firm also added that all stake assets will return to the respective sports wallets of their previous customers and that any rewards that the company was yet to pay out will be made available to their customers before February 9.
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The Possible Effect On Similar Crypto Firms And Crypto Market
Being a prominent presence in the crypto market charges and fines raised against Kraken have a huge impact on the crypto market and also on similar firms.
After the announcement of the charges and the settlement following, the price of the most bitcoin dropped below $21,000. Along with bitcoin, other popular cryptocurrencies like Ether and Binance coin also saw a depletion in their value following the settlement.
Just a few days before, Brian Amstrong who is the CEO of cryptocurrency exchange firm Coinbase shared his concerns regarding the restriction that were coming in crypto staking and the involvement of the SEC in stalking.
Coin base also offers similar products and services for their customers like the Kraken and was concerned about the potential ban that will be implemented in the United States for staking.
Through a series of tweets, Armstrong stated that the involvement of the SEC and the implementation of new rules and regulations will put a stop to the growth and innovations in the field which can contribute massively to the growth and development of the nation.
According to the CEO of the Global Digital Asset and Cryptocurrency Association, the move from the part of the SEC was at the very minimum, going to chill innovation around additional staking opportunities and also to pose a threat to potential evolution in the field of digital assets.
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