Future At Stake For U.S. Crypto Staking? What’s Next For Investors?

2 years ago

Crypto users in the United States remain doubtful about the future of the industry in the wake of SEC's crackdown on staking services.

This week, a lucrative sector of the cryptocurrency industry that was rapidly becoming the backbone of many networks to save on energy consumption unlike Bitcoin, received a shock to the system. A little over half a year ago, Ethereum, the second largest cryptocurrency by market value, led a resurgence in the prices of cryptocurrencies ahead of a major technological update that would make something called “staking” available to crypto investors globally.

SEC’s Crypto Abolition

The majority of individuals had hardly begun to wrap their heads around the idea, but after yesterday’s crypto crackdown by the U.S. SEC, things now appear bleak for the majority of crypto-staking service providers and investors in the country. After reaching a settlement with trading platform Kraken for $30 million and claiming an agreement from the crypto exchange to shut down their staking operations, the United States Securities and Exchange Commission (SEC) declared on Thursday that it would begin charging platforms that offer rewards to their customers through the process staking.

It is highly likely that other companies, such as the larger rival exchange Coinbase Global Inc., would feel the pressure and discontinue their staking services in the same manner that Kraken has. On Wednesday, just the night before Kraken ceased its staking service, Coinbase CEO Brian Armstrong issued a warning to his 1.1 million followers on Twitter that the securities regulator may wish to put an end to staking for retail users in the United States.

While speaking about the present market sentiment regarding staking, research associate Christine Kim of Galaxy Digital was quoted as saying:

If the recent enforcement action by the SEC is, as it appears, targeted against all staking-as-a-service businesses in the US, this will have wide-reaching impacts. It may cause all retail-focused and US-based staking-as-a-service businesses to shut down their operations.

What Is Crypto Staking?

In recent years, the “proof-of-stake” method for running a network has become a popular choice for developers. This is due to the fact that it consumes a significantly lower amount of energy than so-called proof-of-work chains like Bitcoin, and it also has the potential to allow more people to share in the rewards. For their chains to function, decentralized applications like Ethereum, Solana, Tezos, Cosmos, and Polygon all rely on some form of staking in some capacity. According to Staking Rewards, the total value of all assets that had been staked as of Friday was $91.8 billion globally.

Read More: Rich Dad Poor Dad Author Predicts “Valentine Day Massacre”, Another Crypto Crash?

When someone makes an investment with a reasonable expectation of gains that would be generated from the work or effort of others, the SEC typically views this as a red signal. However, the SEC has not issued any explicit guidelines regarding which crypto assets it considers to be securities. According to Oppenheimer’s research, Coinbase currently controls approximately 15% of the market share of Ethereum assets. The current retail staking participation rate in the industry is 13.7%, and it is continuing to expand.

U.S. Falling Behind In Race Of Web3?

Cathie Wood, CEO of ARK Invest, lambasted the ineptitude of United States authorities in a comment she made as speculations of a potential ban on staking for retail customers continue to gain momentum. On February 11, Wood posted her thoughts on Twitter regarding the potential prohibition of staking services provided by centralized entities that are regulated in the United States. She emphasized that it would hurt the country’s competitiveness in the rapidly developing Web3 technology sector.

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