“Not your keys, not your crypto”

Gary Gensler, chair of the U.S. Securities and Exchange Commission, attempted to cast new restrictions on staking in a positive light during a video on Feb. 9.

Gensler says disclosures will benefit investors

In his “Office Hours” series on YouTube, Gensler said:

“When you sign on the dotted line or accept the terms of service, you are generally agreeing that placing your tokens with these providers may mean transferring your ownership to them. There’s an expression … “not your keys not your crypto.”

Many investors are cautious when depositing funds on a centralized exchange, using that very catchphrase as a reminder that exchanges can restrict access to one’s funds.

Gensler said that similar concerns should extend to staking programs offered by exchanges and other companies. He said investors should consider whether centralized services are truly staking their deposited assets. Some services may lend out deposited assets or co-mingle assets with other businesses. Other services may not give investors their fair share of returns, or they may dilute the value of assets that investors already hold.

Gensler added that these concerns apply to staking programs and interest-bearing products by any name, including earn, reward, and APY programs.

He said that a widespread lack of proper disclosure means that there is currently no way for investors to find answers to the above questions and concerns. This, he said, is the reason that the SEC wants companies to comply with securities laws.

Concerns circulate about a ban on staking

While Gensler’s statements imply that crypto companies can comply with regulations, the SEC’s sudden decision to impose unclear rules may amount to a de facto ban.

SEC commissioner Hester Peirce expressed that concern today. After Kraken announced that it would shut down its U.S. staking service as part of an SEC settlement, Peirce wrote that it may not have been possible for Kraken to register properly.

She said that crypto applications are “not making it through the SEC’s registration pipeline” and that it is concerning that the SEC shut down a service that “has served people well.”

Elsewhere, Coinbase CEO Brian Armstrong said that he had heard that the SEC wants to “get rid of crypto staking in the U.S. for retail customers.”

Chief Legal Officer Paul Grewal told Bloomberg today that Coinbase plans to continue offering its staking services, which he says are different from Kraken’s. Unverified rumors also suggest that Coinbase could fight the SEC if it attempts to interfere with the service.

These developments indicate that the SEC takes a strict attitude toward staking. Still, the SEC may be able to eventually create a landscape in which staking services can operate.

Current rules appear to leave room for decentralized on-chain staking on blockchains like Ethereum as well, though the SEC has not explicitly endorsed the practice.