On February 9, 2023, the Securities and Exchange Commission (“SEC”) announced settled charges against Payward Ventures, Inc. and Payward Trading, Ltd. (together, “Kraken”) for failure to “register the offer and sale of their crypto asset staking-as-a-service program[.]”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 Program”), 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].”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?
