With another crypto exchange set to halt US staking, what’s next for the segment?
Staking is set to be more widely embraced in the US as provider practices “mirror on-chain activities,” industry exec says
Pixels Hunter/Shutterstock modified by Blockworks
With Bitstamp becoming the latest crypto exchange set to end its staking services in the US, the outlook for the segment in the country is teetering.
Still, two of crypto’s largest companies continue to provide such offerings amid legal battles with the US Securities and Exchange Commission, and investors’ ability to stake via decentralized platforms remains unhindered.
Bitstamp pointed to “current regulatory dynamics in the US” Wednesday as its reason for soon halting staking for customers living in the country. The decision came about six months after Kraken agreed to end its on-chain staking services for US clients — a move made in tandem with paying a $30 million fine to the SEC as part of a settlement.
Retail and institutional stakers, or validators, stake assets for the right to verify blockchain transactions — ensuring the decentralization of the network while also earning rewards.
Brandon Skurka, president of Canadian crypto platform Bitbuy, said he expects “a viable path forward” for regulated staking in the US as lawmakers and regulators become more familiar with the segment and its benefits.
“Many unregulated staking providers in the US have historically offered staking programs that have lacked necessary protections for participants, including paying out rewards from activities unrelated to on-chain protocol staking,” Skurka told Blockworks. “As practices amongst staking providers improve and mirror on-chain activities, I believe that staking will become more widely accepted and embraced in the US.”
Coinbase and Binance continue to fight
While Kraken and Bitstamp have chosen to end these offerings in the US, others intend to stand their ground.
Coinbase and Binance — crypto giants sued by the SEC in June for alleged securities violations — continue to offer staking services in the US.
Aside from the SEC’s enforcement action against Coinbase, 10 states initiated proceedings related to the company’s staking services the same day.
The following month, Coinbase said California, New Jersey, South Carolina, and Wisconsin required the company to limit its retail staking in those states while proceedings move forward.
“We are confident in the work we have done to abide by all federal and state securities laws, and as we vigorously defend that work we intend to use these proceedings as an opportunity to bring more clarity to our industry as a whole,” Coinbase wrote in its Aug. 3 shareholder letter.
The crypto exchange noted that staking services accounted for roughly 4% of its net revenue during the second quarter. The bulk of the company’s revenue is derived from transaction fees and interest income from USDC.
Coinbase said it seeks to protect access to staking in all states, however, “because staking is so fundamental to the operations and development of our industry overall,” the company added in the letter.
A Coinbase spokesperson declined to comment further.
Binance.US also continues to offer crypto staking despite the SEC claiming that the company’s staking investment product counts as an unregistered security.
While Binance.US halted dollar deposits shortly after the SEC revealed the charges, it noted in a June 9 tweet that “trading and staking as well as crypto-denominated deposits and withdrawals, “remain fully operational.”
“While we remain open to a productive compromise that enables a thriving digital asset marketplace in America, Binance.US will continue to vigorously defend ourselves, our customers and industry against the meritless attacks of the SEC,” it added in the tweet.
Staking remains available for 20 cryptocurrencies, according to Binance.US’ website.
A spokesperson for Binance.US did not immediately return a request for comment.
In Canada, Bitbuy worked closely with regulators to create its regulated staking service, Skurka noted. Roughly 44% of the company’s monthly active users participate in crypto staking.
“Companies that engage in poor practices, or whose staking offerings differ materially from on-chain staking are at risk of being targeted by regulators and ordered to stop,” Skurka said. “Staking providers in the US that provide a managed service for on-chain-like staking will likely continue to be able to provide their services.”
Staking with decentralized protocols
Industry watchers told Bloomberg in February after Kraken’s settlement with the SEC that the regulator’s crackdown on US staking was a boon for on-chain direct staking and decentralized platforms.
Kyle Doane, a trader at crypto asset management firm Arca, told Blockworks Thursday that he expects staking will ultimately move more to decentralized protocols.
While centralized exchanges like Coinbase and Binance.US pool client assets and manage validators on behalf of those assets in aggregate, liquid staking providers like Lido, Rocket Pool and StakeWise use Ethereum smart contracts to create liquid, tokenized versions of the ETH staked.
“There is still a lot of work to do to improve the user experience and security, but a lot of money is being directed towards these efforts,” Doane said. “The utility of liquid staking derivatives is only increasing within DeFi as well, making DeFi ultimately the more efficient route.”
Lido has the largest amount of ETH staked with a roughly 29% share, according to an Aug. 18 research note by Compass Point Research & Trading. Centralized exchanges account for 20% of ETH staked — led by Coinbase at about 11%, the firm said.
Compass Point analysts said in the note that the successful Shanghai hard fork in April has the potential to help spur significant adoption of staking-as-a-service (SaaS) solutions and the liquid staking market. The percentage of ETH supply that is staked is likely to move from nearly 20% to between 30% and 40%, they predict.
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