‘Paternalistic and lazy’—SEC commissioner blasts agency’s move to shut Kraken staking program

Tell us how you really feel, Hester. A commissioner at the Securities and Exchange Commission, Hester Peirce, had some scorching words for her own agency’s decision to fine the exchange Kraken $30 million and shut down its crypto staking service.

“A paternalistic and lazy regulator settles on a solution like the one in this settlement: Do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down,” wrote Peirce on Thursday in her dissent over the Kraken decision.

She’s not wrong. If you’re unfamiliar with staking, it’s a blockchain incentive system that rewards users for locking up tokens and is widely seen as a vital part of the crypto ecosystem, especially after Ethereum switched to a proof-of-stake model late last year. Even if you agree with the agency that Kraken violated securities laws by helping customers participate in staking, there is plenty of reason to be annoyed by the way SEC Chairman Gary Gensler handed down its order.

As he has done since the start of his tenure, Gensler has been playing a duplicitous game with the crypto industry, publicly inviting companies—including industry leaders like Kraken—to work with him on following the rules, but then refusing to explain what exactly those rules are. Too often, Gensler’s guidance for the industry has amounted to “guess what I’m thinking,” and then punishing companies when they guess wrong.

You don’t have to be a lawyer—which Gensler is not—to understand why this is an unfair and destructive approach to crafting policy. But the SEC chair doesn’t seem to care. In the case of crypto, Gensler appears less concerned with fairness and the rule of law than he does with grabbing headlines and showing his political patrons he is “doing something” about crypto. Never mind that he blew his chance to do something to stop FTX, Terra, and other major frauds that happened on his watch.

Ironically, the SEC’s attempt to exert control over the crypto industry is likely to produce the opposite effect as he will drive more investors to engage in activities like staking with offshore companies, or to pursue them with decentralized services like Lido. This is just a recipe for more trouble down the road. I could go on, but I think “paternalistic and lazy” sums it up pretty well.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

Dan Schulman, PayPal’s longtime CEO who oversaw the company’s major push into crypto, is stepping down. (Fortune)

LocalBitcoins, a famous name from the early days of Bitcoin that lets users arrange peer-to-peer crypto swaps, is shutting down. (CoinDesk)

Choppy market conditions led former executives at SoftBank and Genesis to call off their planned Q4 launches of new crypto funds. (Blockworks)

White-hat hackers showed they can crack a hardware wallet by OneKey, which millions of people use to store digital assets. (Fortune)

A judge ordered lawyers for Sam Bankman-Fried to work with prosecutors to ensure he doesn’t delete texts or use encrypted apps like Signal. (NYT)