Jesse Powell, co-founder and exiting CEO of Kraken, commented on his company’s decision to halt its U.S. staking services in a series of tweets on Feb. 9.
Kraken leader comments on the settlement
Yesterday, Kraken reached a settlement with the U.S. Securities and Exchange Commission that forced it to pay $30 million and discontinue staking services for U.S. clients. Kraken’s staking services allegedly constituted a securities offering.
Powell personally commented on those events today. He wrote:
“I honestly hope that somebody proves, in court, that there is a legal, user-friendly version of custodial staking that can be offered to US consumers…It’ll be a brutal, lengthy, expensive fight … but the industry and the USA will be extremely grateful.”
Powell explained that Kraken did not fight the SEC because of “risk-adjusted return,” implying that an unlikely victory would not be worth the legal cost.
He said that although other companies might have the resources to defend themselves, the SEC targeted Kraken during a bear market and waited for it to lay off 30% of its staff. “They have all our financials, lots of leverage,” Powell said. “Maybe we looked weak.”
Powell made those comments in support of Paul Grewal, chief legal officer at the competing exchange Coinbase. Grewal is currently trying to explain how Coinbase’s staking service differs from Kraken’s — presumably in an attempt to fend off possible SEC action.
Powell replies to officials and lawmakers
Powell also replied to SEC commissioner Hester Peirce, who yesterday criticized her agency for not setting out a compliance path for Kraken and other crypto companies.
He said that “guidance would be appreciated,” writing:
“The ‘This is wrong but I won’t tell you how to do it right. Want to find out if X works? Try it and see what happens.’ approach does not help the industry nor consumers. We aren’t anti-regulation but we need a clear path to operate.”
Powell agreed with statements from Congress member Tom Emmer, a noted pro-crypto legislator who advocated against the SEC’s “purgatory strategy”. Powell wrote:
“Congress must act to protect the domestic crypto industry and US consumers who will now be going offshore to obtain services no longer available in the US.”
Emmer similarly warned of staking-related opportunities moving offshore.
Powell advocates for decentralized staking
Though Powell lamented the discontinuation of Kraken’s staking service, he noted that users can engage in decentralized staking on Ethereum. He said that he “highly recommend[s]” this if one has the technical ability and the required minimum holdings (32 ETH).
Powell also advocated for an alternative staking model in response to a comment from NuCypher CEO MacLane Wilkison. There, Powell called demurrage-based staking “the superior model.” In this approach, unstaked tokens are slashed or burned, while staked tokens maintain their regular value. Because this system does not require the distribution of rewards, it would presumably be difficult for regulators to take action against it.
Jesse Powell’s comments carry weight due to his leadership position at Kraken. Though he announced that he would step down as CEO last year, his Twitter bio says that is still in the role as of today, and he remains the company’s most public-facing executive.
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Author: Mike Dalton