On February 9, 2023, the Securities and Exchange Commission (“SECâ€) announced settled charges against Payward Ventures, Inc. and Payward Trading, Ltd. (together, “Krakenâ€) for failure to “register the offer and sale of their crypto asset staking-as-a-service program[.]â€1 This enforcement action raises new questions — and has even spurred criticism from within — about the SEC’s chosen path in connection with crypto asset regulation.
Kraken is comprised of three entities: (1) Payward Ventures, Inc., (2) Payward Trading, Ltd., and (3) Payward, Inc.2 Since 2019, Kraken has provided a crypto asset service known as “staking†(the “Kraken Staking Programâ€), through which Kraken “obtain[ed] investors’ crypto assets, pool[ed] those assets, and then stak[ed] some portion of those assets in order to obtain rewards, a portion of which Kraken distribute[d] to the investors and a portion of which Kraken retain[ed].â€3 On its face, it appears that Kraken provided a valid service to crypto asset holders. So what is staking and where did Kraken go wrong?
