The recent conundrum regarding the SEC’s crackdown on Kraken’s staking-as-a-service program has left many wondering whether this is a sign of a broader change in approach to staking regulation.
While we can neither comment nor predict how authorities will develop staking and securities law, we take a look at the facts and explain how the Finoa platform is different from Kraken, and why Finoa's staking clients will likely be unaffected by US securities law under current circumstances.
Why Kraken’s staking service was scrutinized
According to the SEC's , Kraken was charged with failing to register the offer and sale of its staking-as-a-service program and agreed to pay $30M to settle the charges.
One of the key points of contention in the SEC’s lawsuit is that Kraken neglected investor protection and engaged in an unregistered sale of securities, without providing the proper disclosures and safeguards required by US securities laws.
The SEC pointed to Kraken’s fixed returns and pooling of customer funds as evidence of a securities transaction. According to reporting by and , Kraken provided regular payouts to customers on schedules that were different from the ones set by the Proof-of-Stake protocols.
The Kraken staking program was not subject to the “unbonding” periods typical for the Proof-of-Stake protocols that pay out rewards to stakers, allowing Kraken to abstract the staking operations between customers and their actual on-chain staking activities. Additionally, Kraken marketed it as an investment opportunity, promising “enhanced liquidity and immediate rewards.”
How staking is made transparent through on-chain execution
The process of staking assets using the Finoa platform is completely transparent and differs substantially from the staking program operated by Kraken. Here are the key differences:
- Finoa offers a native on-chain staking experience via segregated wallets by facilitating access to vetted institutional-grade validators
- You have complete control and visibility of the staked assets: staking transactions can be tracked down individually for a full assessment via blockchain explorers
- Rewards are paid out to client wallets directly from the protocol, or by the validator
- Finoa does not mix assets between clients: every asset in every account corresponds to an individual, on-chain segregated wallet.
The shutdown of Kraken’s staking program echoes the recent undoing of other CeFi players and brings once again into focus the importance of on-chain verification, as well as the ability and willingness of these intermediaries to offer a native blockchain experience to customers who want access to decentralized finance.
At Finoa, we apply strict governance processes and company policies to protect your assets and ensure that we always serve your best interests.
If you are interested to learn more about Finoa's general regulatory compliance, risk, and security practices, please refer to this