Wednesday, 22 March 2023

Crypto News

SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

SEC enforcement against Kraken opens doors for Lido, Frax and Rocket Pool

The United States Securities and Exchange Commission (SEC) is ramping up pressure on the crypto sector. On Feb. 9, the SEC reached a $30 million settlement with Kraken over the centralized staking program offered to its users.

The news of the crackdown sent Bitcoin (BTC) price to a 3-week low as investors became fearful of the regulatory enforcement. On the news, Ether’s (ETH) price also corrected, cementing the token’s worst-performing day of 2023.

While the overall crypto market was down after the SEC announcement, bright spots arose with decentralized liquid staking tokens Lido (LDO) and Rocketpool (RPL) and Frax (FXS) quickly rebounding from their sharp corrections.

According to crypto-Twitter analyst Korpi, Kraken and Coinbase represent 33% of all staked Ether, and if US-based centralized exchanges are “forced” to cease offering staking as a service programs, LSD providers could absorb that market share.

Based on recent Tweets, crypto traders are well aware of this potential outcome and this could be part of the reason for the short-term rebound seen in LDO, RPL and FXS, but let’s take a look at more fundamental data points which might back their bullish thesis.

Centralized staking could be banned for US-based investors

The aftermath of Kraken’s capitulation to the SEC could spill over to other centralized exchanges (CEX) that offer staking as a service. While not all SEC commissioners agreed with the crackdown on Kraken, the settlement puts other companies like Coinbase in the hot seat over their earn program.

On Feb. 8, Coinbase CEO, Brian Armstrong described how disastrous the SEC’s crackdown on staking would be for U.S. investors.

The SEC’s decision to regulate cryptocurrencies through enforcement actions rather than through clear regulations caught the ire of the crypto community for actions described as “anti-crypto”.

Decentralized staking as a service could solve securities issues

If a wider crackdown on centralized staking services ensues, that market share of stakers is available to be absorbed by decentralized providers like Lido, Rocketpool and others. In the aftermath of the SEC’s decision, Rocketpool briefly reached $1 billion in total value…

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