There appears to be some confusion regarding the future of staking cryptocurrencies. Recent moves by the SEC have questioned the concept, although various nuances exist. The move signifies the importance of moving crypto off exchanges, which isn’t a bad side effect. 

The SEC cracks down on centralized service providers offering crypto staking solutions. That became apparent when crypto exchange Kraken was forced to settle over a potential breach of securities regulations. The company will pay a $30 million fine and immediately remove all staking from its platform. However, that only applies to users in the United States.

The company may face similar scrutiny in other regions. Even so, that doesn’t mean people are no longer allowed to stake cryptocurrencies. The move prevents centralized exchanges from exerting too much control over user assets. Locking people into the exchange ecosystem through solutions like staking creates more custodial control. Unfortunately, that has never benefited the crypto user, as there are too many trade-offs. 

With Kraken settling with the SEC pretty quickly, other service providers may follow suit. The US government purposefully wants to set itself back a few steps in cryptocurrency adoption. That is an odd choice, given the current economic climate. Moreover, many wonder why the SEC wants to go after Kraken over its staking service. The same agency failed to prevent FTX from collapsing and its owner from stealing millions of dollars. 

That said, other exchanges operating in the US are on high alert. Firms like Coinbase also provide staking support. They may either adjust the service or remove it altogether. That has not been confirmed, but it seems a likely outcome if the SEC aims to become more aggressive.

However, Kraken didn’t register its staking-as-a-service product, whereas other companies may have. It will be interesting to see what comes of this scrutiny by the SEC. 

The more prominent topic is how crypto staking hasn’t become illegal. Users can still move crypto assets to a self-custody wallet and engage in staking through the network.

That is the benefit of decentralized systems: centralized providers can be shut down, but that doesn’t invalidate the technology. If anything, it will lead to more decentralization for most PoS networks.

Users enjoy the convenience of centralized exchanges providing staking-as-a-service. They buy crypto on the platform, click a few buttons, and earn passive income. It is straightforward, and few people mind paying fees or not being in control of their funds. However, the SEC crackdown illustrates the need for self-custody in 2023 and beyond.

The SEC intends to look at any provider offering staking-as-a-service, lending, or “other means” to collect investors’ tokens. That leaves much to the imagination and may signify a more extensive crackdown on cryptocurrency in the United States.

Should that be the case, the industry will come out stronger. It does not rely on the US – or any other individual region – to remain relevant. 

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