SEC's wildest move on Staking business | Go Non Custodial Staking for security

[Flexystar]

With the recent update, SEC's seems to be complicating things in the crypto world. It seems that Staking is also at high risk of getting overruled by the SEC judgment after they have taken down Kraken Staking business and stopped all its operation. Obviously if it was done for one exchanger then it would be followed for most of them in the long run and thus we won't be able to do the Staking.

The Plot: It seems that SEC is slowly injecting hard rules for the centralized market. First they imposed strict KYC ruling on the exchangers. Then they started with the strict accounting data of them and in turn users tax info.

By the time it gets fully operational now they have started banning the Stake operations. Thus, we will be always at high risk of loosing our funds if we have them staked in "Custodial Wallets" or simply on an exchanger.

However, it means only one thing for us and that was the main goal of crypto in the first place: Be your own bank.

Does this mean we will have to stop the staking operations?
Apparently we do not need to go that far. For example, we can always do the staking using Non custodial wallets or wallets whose private keys are in our own hands.

The article that I have quoted suggest ETH staking which can be performed right from your wallet. You can easily have this done with wallets that allow such staking OR simply merging yourself with the staking pools.

Though SEC is performing their devil part here, we should not be afraid of their actions. They can only thrive their rules when we are in the centralized market. They can not enter their jurisdiction into the decentralized market.

Balancing Regulation and Innovation in the Crypto World: Staking at the Crossroads
Staking, the act of retaining a specific amount of a particular cryptocurrency in a wallet and taking part in the validation of transactions on the network, is one of the most discussed topics in the digital asset world today. And for good reason. Staking has been promoted as the answer to several challenges facing the cryptocurrency ecosystem, including scalability, decentralization, and security.

But just as staking was beginning to gain momentum, the threat of overregulation rears its ugly head. The SEC’s recent action against staking services has once again spotlighted the issue of regulation versus innovation. While regulation is vital for stability and security, excessive regulation can hinder innovation and curb the potential for future growth.

It’s a tricky balance, but one that the SEC seems to have gotten wrong with their latest crackdown on Kraken’s staking program. This heavy-handed approach only serves to drive innovation offshore to less regulated regions, where these opportunities will be accessible. And who suffers the most from this? The American people are being deprived of the benefits of a thriving crypto ecosystem.

The truth is, staking is a vital piece in the puzzle of the future of the crypto world. The rewards of staking, such as increased security, decentralization, and profitability, make it an important tool for building a better, more secure, inclusive, and profitable crypto ecosystem. But overregulation threatens to disrupt all of that.

So, what can we do about it? Well, we can start by recognizing the importance of staking and speaking out against overregulation. We need to make our voices heard and let the powers that be know that staking is here to stay and an essential part of the future of the crypto world.

Don’t be discouraged by the SEC’s latest move. Get involved in staking and reap the rewards for yourself. And who knows, you might even help shape the future of crypto in the process. Staking with a centralized exchange (CEX) or custodial service may seem like the convenient choice, but why trust a CEX with your precious assets when you can be the master of your own assets with noncustodial solutions? That’s right, with wallets and staking pools, you can stake your ethereum (ETH) or other cryptocurrencies without relying on a custodial service or exchange.

Stiffing the Staker: The SEC's Latest Crackdown on Crypto Innovation

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[jackg]

Before this was announced I was looking into the UK's regulations on exchanges (I wanted to invest in concentrated liquidity pools) and found that while there's a lot of restrictions on what you can do as a centralised exchange, there's NONE on dexes. I viewed this as quite positive news at the time and I'm not sure how positive it is now because it does mean that if you know what you're doing, you can receive good rewards from it and if you don't then you should maybe just speculate and hold the asset or do safer staking (like the one you suggested from the wallet).

Cex staking seemed like an opt-in procedure so I don't know whether it made sense to come after that - the "investment pools" exchanges like bybit and binance operate though I'd expect to be next. There's not really much education on what to expect from either afaik (although I have barely looked into them - particularly coinbase eth).

[NeuroticFish]

With the recent update, SEC's seems to be complicating things in the crypto world.

I think that they actually make the things more simple and clear. We were saying if for too long and nobody listened: don't keep too much money and for too long at exchanges, every extra dollar and every extra minute is a risk.
All those staking rewards, all the high withdrawal fees were/are games to convince people keep their money in CEX pockets, then the CEX can do a lot of things, from attempts to influence the markets to using fractional reserve and use the funds for something else.

People forget that exchanges are not banks. At least in EU, if a bank fail, the government will reimburse the funds up to EUR 100k/person/bank. This doesn't happen with exchanges, many of them are registered under odd jurisdictions too, but people still don't care.

Bitcoin is about not having to trust other people or institutions (and the legit/correct altcoins are also following the same idea). So what SEC does is.. right, for a change.

[Flexystar]

With the recent update, SEC's seems to be complicating things in the crypto world.

I think that they actually make the things more simple and clear. We were saying if for too long and nobody listened: don't keep too much money and for too long at exchanges, every extra dollar and every extra minute is a risk.
All those staking rewards, all the high withdrawal fees were/are games to convince people keep their money in CEX pockets, then the CEX can do a lot of things, from attempts to influence the markets to using fractional reserve and use the funds for something else.

People forget that exchanges are not banks. At least in EU, if a bank fail, the government will reimburse the funds up to EUR 100k/person/bank. This doesn't happen with exchanges, many of them are registered under odd jurisdictions too, but people still don't care.

Bitcoin is about not having to trust other people or institutions (and the legit/correct altcoins are also following the same idea). So what SEC does is.. right, for a change.

Yes it is positive only if people understand what it means to put your money on exchange which is controlled one. Though we had various occurrences over the time in regards with exchangers getting hacked, money along with the KYC details getting stolen they never learn about it.

Definitely SEC putting restrictions on staking can cause the crowd to move towards the options that are mentioned in the OP. Like staking Pools, staking from wallets.

It may lead to development of more decentralised pools sooner or later. Because not every coin is capable of PoW mechanism. Even coin like ETH moved to PoS thus making larger change in the way crypto works.

[bittraffic]

Going noncustodial is the best option for us who stakes not just ETH but some other altcoins.
It's a bit surprising actually why Kraken just fold their card against SEC on this and agreed to pay $30M. I wonder why they are not asking Coinbase to help them win the case as coinbase promised to fight against SEC if they are targetted.

I think the crypto exchanges should unite to fight against SEC otherwise it's a loss of one may cause panic just as it did last week.

I can't help thinking centralized exchanges are in cahoots with SEC's crackdown and operation chokepoint as they just give up that quickly. Imagine a business paying $30M all for that? Where do you think will he get that money?  

Are the ETH staking rewards to be handed over to SEC or are they just split 50% for SEC and 50% for Kraken?

[coupable]

When I first read the news, the first thing that came to my mind was the rest of the platforms around the world that provide the staking feature.  This is supposed to affect her in one way or another.  In the sense that this will raise concerns for all users, not just the users who are affected by sec inside the US.

[tiCeR]

With the recent update, SEC's seems to be complicating things in the crypto world.

I think that they actually make the things more simple and clear. We were saying if for too long and nobody listened: don't keep too much money and for too long at exchanges, every extra dollar and every extra minute is a risk.
All those staking rewards, all the high withdrawal fees were/are games to convince people keep their money in CEX pockets, then the CEX can do a lot of things, from attempts to influence the markets to using fractional reserve and use the funds for something else.

People forget that exchanges are not banks. At least in EU, if a bank fail, the government will reimburse the funds up to EUR 100k/person/bank. This doesn't happen with exchanges, many of them are registered under odd jurisdictions too, but people still don't care.

Bitcoin is about not having to trust other people or institutions (and the legit/correct altcoins are also following the same idea). So what SEC does is.. right, for a change.

I mostly agree but I think that stable cryptocurrencies also contributed a big deal to expanding the crypto ecosystem as well. Having an option to hedge part of your Bitcoin by paring it in stable cryptocurrencies was certainly something that was missing until the first reliable options came out. It also made taxation less complicated for the users since they didn't have to calculate exchange rates between Bitcoin and another volatile cryptocurrency.

You could have sold for USD as well of course, but that comes with the hassle of having to wait until the USD arrive in your bank account. Now whether or not someone likes and uses stable currencies they still contributed a lot to the overall crypto market I guess.

But yes it did add another risk vector to the system eventually. However, I don't expect the SEC to shut down those stable currencies because if they deem it a security and the issue is just that it wasn't registered as such, isn't the most likely turn of events that Binance or Paxus registers it as such and perhaps pays a fine? If it is backed as those reports state by 100% US Treasury Debt and Bills, what reason would the SEC have to deny attempts to get it registered and just operate it as a security?

[mindrust]

Just buy bitcoin and hold if you want to get rich. Proof of stake is an illusion of making money. In reality you are not making anything. You are creating more of the same worthless tokens and the more you create, the more worthless it becomes. Bitcoin don’t need these tricks. It has a limited supply and that makes it a better choice than anything with an infinite supply.

[adaseb]

I think the reason why they did this was because of all those lending services which went bankrupt and caused many to lose their money. The icing on the cake was Gemini with their Genesis Loan program. Most likely many complained to the SEC and they had to do something so the public thinks they are actually doing their job.

So basically they picked Kraken and slapped them with a big fine. This is pretty much contagion which is still spreading from the fallout of FTX.

[crwth]

The people who are into staking in exchanges are people who probably don't want to be bothered too much by the hassle of doing it in a non-custodial staking or any other way to stake in the cryptocurrency market.

Some companies have made it easier for us to stake safely with the use of their product, like Ledger. Ledger has the staking option that makes it possible for users to stake with having your personal keys, and you have complete control. ^[1]

I would choose to stake using my device instead of using an exchange feature for it. It's better that way for sure.


[1] - https://www.ledger.com/staking

[davis196]

SEC simply wants to prevent another big centralized crypto exchange from turning into FTX 2.0. I usually don't support the regulative BS that is being produced by SEC, but this time I'm not their side. This isn't the "wildest move" like OP is stating in the thread title. It's a pretty normal move. The regulatory authorities like SEC should be more active when it comes to fighting shady financial activities coming from the big centralized crypto companies.
I agree with the OP above my post. We don't necessarily need a centralized exchange in order to stake shitcoins/tokens. Even Exodus wallet has a feature where the users could stake coins. I'm not a fan of staking in general, but everyone is free to choose what he wants to do with his own coins.

[o48o]

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The truth is, staking is a vital piece in the puzzle of the future of the crypto world. The rewards of staking, such as increased security, decentralization, and profitability, make it an important tool for building a better, more secure, inclusive, and profitable crypto ecosystem. But overregulation threatens to disrupt all of that.
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Stiffing the Staker: The SEC's Latest Crackdown on Crypto Innovation

The article also seems to think that this is a move against staking as in PoS but it's not. It's against CEXes paying interest for their users locking their tokens. Because that's an actual investment. That has nothing to do with the innovation that's Proof of Stake.

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Though SEC is performing their devil part here, we should not be afraid of their actions. They can only thrive their rules when we are in the centralized market. They can not enter their jurisdiction into the decentralized market.

Technically not, but FATF is a whole different beast. It doesn't matter if you are not dealing with fiat money in dexes, because eventually you will cash out and that's where they get in. But if you haven't done anything illegal and kept a log of your finances, you are not in trouble.

[Mr. Magkaisa]

   -   What the SEC did was only in the U.S. but other countries that are no longer covered by the U.S. are not affected there.

As for me, I have never tried to stake money using any centralized exchange, but I have experience with decentralized because on decentralized platforms you can somehow unstake your money, unlike in centralized exchanges it is not like that.

[adaseb]

Sure you can stake your tokens yourself however the ease of use is better with an exchange you trust. Unless you are an experienced computer user, staking is not that easy. If you dont know what you are doing you can get your tokens stolen. Since the SEC has banned staking, what will happen?

Will people stop staking? No they will either use off shore exchanges which are riskier or they will stake themselves and make a mistake and get their tokens stolen. This move will create more problems then it will solve by the SEC.

[Hispo]

It was expected, to be honest. In the end, it is nature of government to make things as difficult as possible to decentralization.
This will only push people to find decentralized solutions, however, last time I checked one needed an important amount of money to become a validator and the average yield was in the order of 4%.

So I assume staking is mostly aimed to those who feel bullish on Eth in the long term anyways and have a lot of it.

[tiCeR]

It was expected, to be honest. In the end, it is nature of government to make things as difficult as possible to decentralization.
This will only push people to find decentralized solutions, however, last time I checked one needed an important amount of money to become a validator and the average yield was in the order of 4%.

So I assume staking is mostly aimed to those who feel bullish on Eth in the long term anyways and have a lot of it.

These staking functions have primarily been a tool to attract investor's money to their platforms, but there is indeed some risk involved. If they engage in a competition of who is paying more for nothing, it could have ended in another disaster like FTX at some point. Anyway, I agree that decentralized solutions are the way to go anyway for those who are interested in parking their crypto in exchange for an interest rate.

The only problem I see with non custodial staking is that it will lead to centralization over time or not? Won't the rich get richer and gain increasing network dominance? If those who stake the most also re-stake their gains, they'll start dominating the network. It shouldn't be too much of a problem as that also increases their skin in the game, but centralization is still one of the results.

The financial requirement is pretty high I think in order to be able to stake, but that's where those pools come into play. However, does participating in pools compromise individual security?

[Hispo]

-snip-

The only problem I see with non custodial staking is that it will lead to centralization over time or not? Won't the rich get richer and gain increasing network dominance? If those who stake the most also re-stake their gains, they'll start dominating the network. It shouldn't be too much of a problem as that also increases their skin in the game, but centralization is still one of the results.

The financial requirement is pretty high I think in order to be able to stake, but that's where those pools come into play. However, does participating in pools compromise individual security?

The issue of whales having more power in Proof of Stake scheme for now is implicit of that system, as far as I know, regardless whether we are talking about a decentralized or centralized staking interface. I have not read about the functionality of the staking pools, if the code is good it should not be any problem with exploits.

The main problem with those pools is the fact that retailer Ethereum users won't get much passive income out of it so not many of them will participate.

[tiCeR]

-snip-

The only problem I see with non custodial staking is that it will lead to centralization over time or not? Won't the rich get richer and gain increasing network dominance? If those who stake the most also re-stake their gains, they'll start dominating the network. It shouldn't be too much of a problem as that also increases their skin in the game, but centralization is still one of the results.

The financial requirement is pretty high I think in order to be able to stake, but that's where those pools come into play. However, does participating in pools compromise individual security?

The issue of whales having more power in Proof of Stake scheme for now is implicit of that system, as far as I know, regardless whether we are talking about a decentralized or centralized staking interface. I have not read about the functionality of the staking pools, if the code is good it should not be any problem with exploits.

The main problem with those pools is the fact that retailer Ethereum users won't get much passive income out of it so not many of them will participate.

Yes but poos would still lower the barrier to entry to at least some degree. Since the transaction costs are still relatively high, I don't know how those pools would be best handled, but anyway. In a centralized interface when we talk about exchanges offering stable coin staking, the money is just coming from the exchange itself. In a decentralized interface we are talking about algorithmic stable coins I suppose, but I have never really looked into them or used them. I just came across some theories once where attacks on algorithmic stable coins were discussed. As soon as you want stable coins to be backed with fiat currencies, the risk for those offerings to get shut down is very real as we have now just seen.

However, if those companies like Coinbase have the required licenses and can prove that stable coins are backed by "safe" assets, I don't get why they would make a difference between a bank offering interest rates on deposits and registered crypto exchanges. Sure auditing requirements would perhaps have to be adjusted, but as long as there is sufficient backing of pegged cryptocurrencies, why shut the offerings down?

[serjent05]

I believe this only applies on exchanges that are based in the USA since it is from the USA SEC that ordered centralized exchanges to stop offering these staking options to the client.  If an exchange is operating outside the USA jurisdiction then the token staking will still continue on that exchange.

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The only problem I see with non custodial staking is that it will lead to centralization over time or not? Won't the rich get richer and gain increasing network dominance? If those who stake the most also re-stake their gains, they'll start dominating the network. It shouldn't be too much of a problem as that also increases their skin in the game, but centralization is still one of the results.

The financial requirement is pretty high I think in order to be able to stake, but that's where those pools come into play. However, does participating in pools compromise individual security?

The issue of whales having more power in Proof of Stake scheme for now is implicit of that system, as far as I know, regardless whether we are talking about a decentralized or centralized staking interface. I have not read about the functionality of the staking pools, if the code is good it should not be any problem with exploits.

The main problem with those pools is the fact that retailer Ethereum users won't get much passive income out of it so not many of them will participate.

Well, whales do have the power over staking,  since the power goes to the token that has the most number.  If they have enough whales can eve break any market when they dump.  Aside from that most validators have huge amount of token so it is indeed the one who has the number of token has the power to move the market

[Hispo]

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Well, whales do have the power over staking,  since the power goes to the token that has the most number.  If they have enough whales can eve break any market when they dump.  Aside from that most validators have huge amount of token so it is indeed the one who has the number of token has the power to move the market

I believe the problem goes beyond on the power Ethereum whales have to move the market at their will, using their big positions to influence the retailers. It is rather about the fact validators could reject transactions which they would not deem to be "authentic" or "honest", that could lead to a problem of censorship within the Ethereum ecosystem, in my opinion, even more if some of those big validators are exchanges or other kind of entities which have to face the government of the United States and the SEC.