Troubling New Bombshell: SEC Reportedly Wants To Crack Down On Crypto Staking

Troubling New Bombshell: SEC Reportedly Wants To Crack Down On Crypto Staking

As the United States regulators tighten their noose around cryptocurrency, rumours are swirling that the next target for the Securities and Exchange Commission (SEC) could be crypto staking for retail investors.

Brian Armstrong, the CEO of Coinbase exchange, shared the same on Twitter Thursday.

Banning Crypto Staking Would Be A “Terrible Path” For U.S.

U.S. regulators are reportedly interested in prohibiting retail investors from engaging in crypto staking.

Coinbase’s Brian Armstrong revealed on Feb 9 that he had heard rumours that the SEC is planning to ban cryptocurrency staking completely. Staking is an income-generating process by which users can deposit proof-of-stake tokens to a blockchain to help secure the network. In return for their services, stakers receive yield. The higher the stake, the higher the crypto rewards.

This incentive system allows the correct and secure functioning of blockchains like Ethereum. Withdrawing staked ether after it’s been deposited is not possible until the imminent Shanghai network upgrade scheduled for next month.

“We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers,” Armstrong tweeted. “I hope that’s not the case, as I believe it would be a terrible path for the U.S. if that was allowed to happen.”

2/ Staking is a really important innovation in crypto. It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints.

— Brian Armstrong (@brian_armstrong) February 8, 2023

The SEC has not yet commented on the rumour. However, the commission has made cryptocurrencies a top priority in 2023 following the implosion of the FTX exchange last November.

It is to be noted that SEC chairman Gary Gensler has also previously indicated that cryptos that allow staking could be treated as securities. This is despite Ethereum, which in September transitioned from a proof-of-work to a proof-of-stake security model, being declared a commodity by the SEC’s U.S. sister regulator, the Commodity Futures Trading Commission (CFTC).

Armstrong Lambastes SEC’s Regulation By Enforcement

CEO Armstrong further criticized the present lack of clear rules in the U.S. and the subsequent “regulation by enforcement” approach adopted by the SEC that he believes is forcing crypto companies to operate offshore. He reiterated his willingness to work with regulators to create clearer rules for the industry while preserving innovation.

Coinbase has previously been at loggerheads with the SEC. The agency is investigating whether the San Francisco-based exchange allowed Americans to trade crypto assets that should have been registered as securities. Coinbase has even had to kill its lending product plans after facing intense pressure from the SEC.

According to data pulled from Staking Rewards, the top five staked cryptocurrencies by market cap account for over $59 billion in staked assets. This means that a complete ban in the United States would be a massive blow to the industry, which is still reeling after several high-profile collapses last year.

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