In response to the SEC’s February crackdown on Kraken’s staking program, Coinbase has submitted a “Petition for Rulemaking” arguing that staking should not be classified as securities. The 18-page document argues that staking is not a monolithic concept and that core staking services do not meet the criteria of the Howey test, which defines what constitutes a security.
Coinbase argues that staking is not an investment of money, as the opportunity cost of staking is not an investment. Users retain full authority over their assets, with the ability to unstake them, sell, hypothecate, vote, pledge, or otherwise dispose of them independently of the service provider. The rewards users receive are simply payments for services rendered, and core staking services entail ministerial maintenance and not managerial efforts in the sense of traditional investing.
The petition cites several historical precedents that can guide the SEC on the current regulatory work with crypto staking. These include the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000, and the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, from 2017. Coinbase urges regulators to consider the economic consequences of their actions on the digital asset ecosystem and take a different approach to the treatment of staking services.
Coinbase publicly distanced itself from Kraken’s staking program in February, with CEO Brian Armstrong expressing his readiness to defend the company’s position in court “if needed.” Despite the SEC’s actions, Coinbase has reiterated to customers that its staking services will continue and “may actually increase.”
Overall, Coinbase’s petition to the SEC on staking argues that the practice should not be universally labeled as securities. It provides a detailed argument based on historical precedents and highlights the economic consequences of regulatory actions on the digital asset ecosystem.
The examination into crypto staking services supplied by South Korean exchanges that was conducted by the Financial Supervisory Service (FSS) has brought to light the difficulty of striking a balance between innovation and regulation in the quickly developing cryptocurrency market. Even while staking has become a popular method for investors to make passive income on their cryptocurrency holdings, authorities are worried about the possible threats that might be posed to consumers as well as the stability of the market.
The question of whether or not “staking” may be legally understood as a type of trading in “securities” is one of the most important questions for regulators to answer. Domestic exchanges have asserted that they do not use customer funds to pay out staking earnings and that they keep exchanges’ own tokens separate from those belonging to customers. However, regulators want to make sure that customers are fully informed about the risks that are involved in using domestic exchanges.
On the other hand, there is a possibility that restrictions that are too onerous would hinder innovation and cause enterprises that are tied to cryptocurrencies to leave South Korea. The nation is home to a burgeoning cryptocurrency economy, as seen by the presence of a number of cryptocurrency exchanges and blockchain firms. These businesses have been essential in South Korea’s job creation and economic expansion, and government authorities will need to carefully evaluate the effects that any new restrictions would have on this industry before imposing such regulations.
The creation of a regulatory sandbox for crypto staking, which would allow for the testing of new goods and services by businesses in a regulated setting, is one of the possible solutions to this problem. This would make it possible for authorities to monitor the risks involved with staking, making it possible for them to safeguard consumers while still encouraging innovation in the area.
The continuing expansion and prosperity of South Korea’s cryptocurrency economy will ultimately depend on the country’s ability to strike the appropriate balance between decentralized innovation and government oversight. In this fast developing industry, it is essential to foster an environment conducive to entrepreneurial endeavors as well as innovation. This goes hand in hand with the need to safeguard consumers and preserve market equilibrium.
The Financial Supervisory Service (FSS) of South Korea has begun an inquiry into the cryptocurrency staking services provided by local exchanges such as Upbit, Bithumb, Korbit, and Coinone. The regulator has sought data from these exchanges that is connected to staking, which has led to worries over the possibility of new laws that are related to staking. On the other hand, a spokeswoman for the FSS has indicated that there are not presently any plans to completely prohibit domestic stakestaking.
Following a similar step by US authorities, which only recently initiated a legal fight against stake providers, the FSS has opened an investigation into the matter. The Chief Executive Officer of Coinbase, Brian Armstrong, has made the assertion that the Securities and Exchange Commission of the United States (SEC) is attempting to “get rid of crypto staking in the US.” The Financial Stability Service (FSS) has responded to this by stating that it wants to make certain that domestic staking providers adhere to the letter of the legislation.
Despite the fact that South Korean exchanges have asserted that they do not use customer funds to pay out staking earnings and that they store the exchanges’ own tokens in a separate location from the tokens that belong to customers, South Korean regulators are interested in finding an answer to the question of whether or not staking services can be legally construed as a form of “security” trading.
The result of legal disputes in South Korea might be affected by further developments in the United States over the question of whether or not some cryptocurrencies can be considered securities. The latest action taken by the SEC against Terraform Labs and its CEO Do Kwon is being hailed as a “good step” by the prosecuting authorities in South Korea. The SEC has leveled allegations of “securities” breaches against Kwon and other corporate leaders, and the agency is now waiting for a response from the US judicial system.
Thailand’s Securities and Exchange Commission (SEC) on Thursday announced a ban on crypto firms from offering staking and lending services to investors in the country.
The move comes a few months after Thai-based crypto exchange Zipmex ran into financial difficulties due to a severe liquidity crisis following a sharp selloff in markets that started in May with the collapse of two paired tokens, Luna and TerraUSD.
Centralized crypto exchanges offer different staking and lending options, thus allowing customers to earn interest on their idle digital assets. But the Thai SEC has now imposed a ban that prohibits companies from providing such services.
According to the announcement, Thailand’s regulators held a meeting on September 1 and discussed the liquidity troubles facing several foreign crypto companies in the country.
Authorities, therefore, approved a decision to ban crypto firms from offering interest-based services to customers as a way to help safeguard investors from liquidity risks. The SEC also believes that the decision will clarify misconceptions surrounding the regulatory status of crypto staking and lending services.
Domino Effect When Crypto Collapsed
The collapse of a multibillion-dollar cryptocurrency called Terra caused a massive bloodbath in the crypto market in May. As a result, several crypto firms, mainly lending platforms, became bankrupt, thus making it impossible for customers to access their deposited funds.
From Celsius to Three Arrows Capital, several major industry players have lost massive funds to the 2022 crypto plunge triggered by the cascading effect of the LUNA/UST crash.
On July 20, Zipmex, a crypto exchange headquartered in Singapore, which also operates in Thailand, Indonesia, and Australia, suspended withdrawals, citing reasons “beyond its control” like volatile market conditions and the resulting difficulties of key business partners.
Although the distressed crypto exchange resumed partial withdrawals shortly after a temporary suspension, its actions caught the attention of Thailand’s authorities.
In late July, the Thai SEC quickly launched a probe into the exchange, seeking reasons for the suspension. Zipmex later said it had $53 million exposure to troubled crypto lenders Celsius Network and Babel Finance.
Celsius and Babel Finance are among several crypto players that have fallen into difficulties in recent months.
Thai watchdog worked with law enforcement to look into potential losses among the public after Zipmex suspended withdrawals.
The SEC also created an online forum to collect data from affected Zipmex customers to take legal action against the platform.
Last week, the SEC filed a police complaint against Zipmex and Akalarp Yimwilai, a co-founder of the company, and the CEO of its Thai unit, for failing to meet the deadline for sharing required transactional information.
Crypto staking involves locking up one’s cryptocurrency holdings to earn interest or rewards. Technically, “staking” is how certain blockchain networks verify transactions.
From an investor’s perspective, staking cryptocurrency is a way of growing one’s crypto holdings without needing to buy more. Staking crypto for maximum passive income is a legitimate way of earning yields through one’s existing crypto holdings. Investors who participate in staking enjoy interest that is greater than what is offered through a regular bank account.
If you’re interested in staking cryptocurrency but are unfamiliar with the term, let us get you up to speed. Before we go there, it’s essential to understand the concept of blockchain technology. Cryptocurrencies are built with blockchain technology. Transactions involving such cryptocurrency need to be validated before the corresponding data can be stored on the blockchain. This validation process is called staking.
Let’s break it down further.
Because blockchain networks are decentralized, there are no middlemen. This is in stark opposition to traditional financial systems that use banks, for example, to serve as a repository of the public’s money.
As such, decentralization calls for a publicly accessible record across the network to ensure there is complete transparency and validity across all transactions. Transactions are collated into “blocks” and are submitted for inclusion into this record, which is immutable.
That’s kind of the greatest security feature of blockchains, by the way. Since everything is accessible and verifiable through a distributed public ledger (the record), it’s very hard to trick or hack.
That being said, once these blocks are accepted, users who own these blocks get a transaction fee as payment in the form of cryptocurrency.
What does staking have to do with all of this? you might ask. Simply put, staking is a safeguard against errors and fraud that may happen during the process.
Every time a user proposes a new block or votes to accept a proposed block, they place some of their cryptocurrency on the line. This process incentivizes adhering to the rules. So, in principle, the more crypto a user puts at stake, the higher the chances of earning transaction fee rewards.
However, if a user’s proposed block is found to have fraudulent or inaccurate data, they can lose what they put up as a stake. This process is called ‘slashing.’
How does crypto staking work?
There are many ways to start staking crypto. For starters, you can choose to validate transactions using your own computer. You can also “assign” your crypto to someone you trust and ask them to validate you.
Note that not all cryptocurrencies can be used to stake. We’ll discuss more of this later, so keep reading.
What is proof-of-stake?
Proof-of-stake is a consensus mechanism that allows blockchains to validate transactions. In proof-of-stake (PoS), the number of coins (or the amount of stake) determines the chances of validating a new block.
PoS was created as an alternative consensus mechanism to the original proof-of-work (PoW). PoS is one of the most common consensus mechanisms and is continually gaining traction for its efficiency and the possibility of earning crypto staking rewards.
Unlike PoW which is very energy-intensive and requires a lot of computing power, PoS does not require as much computational work to verify transactions. Coin owners “stake” their coins as collateral in order to validate blocks.
What are staking rewards?
Staking rewards are incentives provided to blockchain participants. In every blockchain, there is a certain amount of crypto rewards allotted for the validation of transactions. As such, participants who stake crypto receive staking rewards when they are chosen to validate transactions.
Basically, staking allows participants to earn more crypto. Interest rates vary depending on the network, but participants can earn as much as 20% to 30% yearly. Many people stake crypto to earn passive income or invest their money.
Ways to Stake Crypto
To stake crypto, one must select crypto that uses the proof-of-stake model, such as Ethereum. There are various ways to stake cryptocurrency:
Through an exchange
You can choose to use an exchange to stake your tokens on your behalf. An exchange is an online service that specializes in crypto matters. Most exchanges ask for a commission in exchange for staking services. Some popular exchanges that offer staking are Binance.US, Coinbase and eToro.
By joining a staking pool
Some investors don’t use exchanges simply because not all of these platforms support a wide array of tokens. So, another alternative is joining what’s called a “staking pool,” typically operated by another user.
You’ll have to connect your tokens via your crypto wallet with the validator’s pool. To ensure the legitimacy of these validators, ensure you check out the official websites of proof-of-stake blockchains to understand how they should operate.
By being a validator
Validators are coin owners with staked coins. They are selected at random to validate a block. It’s the equivalent of ‘mining’ when using a competition-based mechanism such as proof-of-work.
Naturally, one of the most effective ways to stake crypto is by becoming a validator yourself. Blocks are validated by more than one validator, and when a specific number of the validators verify that the block is accurate, it is finalized and closed.
However, it’s a bit more complicated than using an exchange or joining a pool, as it requires you to build your own staking infrastructure. You need to have the proper equipment with adequate computing power and software and download the blockchain’s entire transaction history.
Becoming a validator typically involves a high entry cost as well. On the Ethereum network, one needs to have at least 32 Ether (ETH), which roughly converts to $140,000, give or take. Read more about staking and becoming a validator on the Ethereum network here.
Is staking crypto profitable?
So, the burning question really is: How does staking crypto make money?
Let’s put it this way. If you’re already familiar with the practice of mining and trading crypto, then that’s a great start. Staking can be just as profitable, minus the risk that comes with mining and trading.
So, yes, staking crypto is profitable. Basically, you have to buy and hold some coins and add them to the mining pool. The profits you make, which typically come in the form of transaction fees, will depend on how much you stake and how long you do it.
Things to consider when increasing your staking profit
Generally, you make more profit with staking as you continue to stake more. However, there are other things to consider when it comes to increasing your profits:
Coin value: Steer away from staking a coin with very high inflation rates. You may earn big rewards initially, but since the value of the coin is volatile, you may be left with little to no profit.
Fixed supply: Ensure that the token or coin has a fixed supply. Limited circulation of coins within the market ensures a healthy demand and constant price boost.
Actual applications: Cryptocurrency demand largely depends on a coin’s actual applications. If it is widely used for various applications in the real world, such as for digital payments, it will continue to have a healthy demand and price.
Which crypto is best to stake?
As mentioned earlier, not all crypto is viable for staking. Bitcoin (BTC), for example, does not support staking because it uses a different method of validating transactions: proof-of-work. Generally, if a cryptocurrency is linked to a blockchain that uses proof-of-stake as its incentive mechanism, it might be eligible for staking.
Ethereum
Ethereum offers substantial staking returns because it remains one of the most popular altcoins in the market today. The average rate of return for staking Ethereum is at 5-17% annually.
Cardano
Like Ethereum, Cardano is also a smart-contract platform. Cardano (ADA) is the digital currency that powers the platform’s proof-of-stake network. Binance supports the staking of ADA and offers yields of up to 24%.
EOS
EOS is also used to support decentralized programs, much like Ethereum. EOS (EOS) can be staked to earn rewards averaging at 3.2%.
Cosmos
Dubbed the ‘internet of blockchains,’ Cosmos allows different blockchains to transact with each other via interoperability. Various platforms support the staking of Cosmos (ATOM) including Coinbase, Kraken and Binance. ATOM staking yields an average of 7% per year.
Tezos
Tezos is an open-source network with Tezos (XTZ) as its native currency. XTZ can be staked on various platforms like Kraken, Binance and Coinbase. The average yield for staking XTZ is currently at 6%.
Polkadot
Polkadot, like Cosmos, encourages interoperability between various blockchains. Despite being relatively new, staking Polkadot (DOT) is supported by several platforms including Kraken, Fearless and Binance. The current average yield for staking Polkadot is at 12% yearly.
Can you lose money staking crypto?
When investing, the first and most important thing to consider is the risk involved. So, is staking crypto safe?
You bet it is, but there are definitely a few risks involved.
Generally speaking, you cannot “lose” money from staking crypto per se. What you have to look out for are things such as inflation and illiquidity, to name a few. Given how volatile cryptos are, there are chances that the coin you put up for staking could fall. For example, if you stake your crypto and it loses value even after you earned yields after staking, then technically speaking, you could still lose money.
And, if you’re a day trader, you cannot use the coins for several weeks or months and thus miss the opportunity to bet on lucratives. This is why it’s important to be wise when choosing which coins you want to stake.
Review the tips we outlined in the section “Is staking crypto profitable?” to ensure that you’re making the right choice before staking.
Mike Novogratz’s investment management firm Galaxy Digital has reportedly participated in a $50 million funding round for Figment, a crypto staking startup.
According to Bloomberg on Monday, Galaxy Digital joined investors like Anchorage and Bonfire Ventures in a Series B funding round led by Senator Investment Group and Liberty City Ventures.
The company is now reportedly worth about $500 million following the fresh injection of investment capital.
Commenting on the funding round, Lorien Gabel, CEO of Figment, said that the funding marks a “new chapter” for the firm.
The announcement also included a quote from Novogratz describing the yield generating potential of proof-of-stake (PoS) as an “important catalyst” in incentivizing greater institutional interest in digital assets.
PoS is an alternate consensus protocol to proof-of-work that replaces the computational requirements for transaction validation in the latter with a system based on the validator’s stake in the network.
Indeed, Figment reportedly stakes more than $7 billion worth of digital assets for over 100 institutional clients and is looking to upscale its workforce to further expand its business operations.
Related:JPMorgan report: Eth2 could kick-start $40B staking industry by 2025
Novogratz’s comments about PoS driving institutional adoption of digital assets are already playing out in the crypto space. Companies like European telecom giant Deutsche Telekom are involved in the cryptocurrency staking arena.
As previously reported by Cointelegraph, Deutsche Telekom recently tapped Coinbase Custody as the preferred custodian of its staked Celo (CELO) tokens. Indeed, the company is also a validator on the Celo network via its T-Systems MMS subsidiary.
Back in July, Swiss-licensed digital asset bank Sygnum became the first bank to offer Ethereum 2.0 staking services to institutional clients. Indeed, Ethereum’s transition to PoS has been tipped to have profound implications for the emerging “Staking as a Service” market.
We’re pretty sure that’s the most asked question in the crypto area after “Should I buy Bitcoin?”.
For as long as time has been recorded, “old vs. new” was always in trend. There will always be those people loyal to the origins and those who want to try everything new. And even if crypto only turned 12, we can already see this kind of dispute between crypto users.
So before deciding what option fits you best, take a look at this article and find out the advantages and disadvantages of crypto mining and staking.
Crypto Mining – Goods & Bads
Crypto mining is the process of solving complex equations to validate blockchain transactions. The crypto miners are rewarded every time they find the correct combination. And if you succeed by doing it solo, you can definitely expect to get a worthy reward.
Now let’s dive in.
Crypto mining advantages
Your income can rise considerably.
The value of a single BTC is $50,725 at the time of writing. The last time we checked, the reward for a new block generated was 6.25 BTC, with the sum being distributed between contributors.
Your mining rewards are safe.
The more computer power the network has, the harder it is for malicious actors to access your account. For example, they would need to own 51% of the network – which is expensive and not rewarding.
Crypto mining disadvantages:
It’s expensive
To mine cryptocurrencies, you need to buy mining software and a cooling system. Plus, the mining process will require a lot of electricity. So prepare your wallet.
There is a lot of competition.
Of course, it depends on the coin you want to mine. But if you want to mine Bitcoin, for example, you compete with mining farms worldwide. So most people choose to do pool mining instead, but the rewards are significantly lower.
You contribute to global pollution.
Electricity consumption is a genuine concern in 2021 since it contributes to climate change. Take note that on March 18th, the annual power consumption of the Bitcoin network was 129 TWh, meaning 129 billion kWh.
Crypto Staking – Goods & Bads
Crypto staking is an alternative for crypto mining, where all the validators need to do is lock their cryptocurrencies and wait for the rewards. The longer you lock them for, the greater is the profit.
Crypto staking advantages
It’s easy and cheap
You don’t need to buy any kind of mining software. Staking requires some assets that you are willing to deposit in a pool for a period of time. And the rewards are distributed daily.
Your assets are still secured.
A malicious actor would need to own no less than 51% of the total staked cryptocurrencies to hack your account.
It’s environmentally friendly.
Staking doesn’t need a lot of electrical power. Everything is done just on your computer, so it doesn’t differ from your usual online activity. Plus, a lot of wallets are available on mobile, consuming even less energy.
It got a lot of popularity.
The rewards depend on the total amount of crypto staked in the pool, so the more users, the better. And since the new generations prefer eco-friendly and convenient solutions, staking platforms are crowded.
TakeStudent Coin, for example. After just 12h since the launch of the STC token, 1.2 billion tokens got staked on the platform. That means a total of $40 million. Impressive, right?
Crypto staking disadvantages
The rewards are smaller than with mining.
Because there are more people to distribute the rewards to, their earnings will be smaller. So don’t expect to get rich just by staking. But it is still a great source of additional income.
The value of your assets can decrease.
If you stake your coins and, in the meantime, a bear market occurs, you can find yourself in a pretty tight spot. Some platforms lock your coins for a specific period, and if you want to withdraw them sooner, you would need to pay some fees.
So, it’s a little risky, but that’s the beauty of working with volatile currencies.
Who wins?
Well, you are the only one who can answer this question since we all have different desires and expectations.
If you have enough money to invest in crypto mining, then you can go for it. But if you just want some extra money or don’t like the idea of pollution, you should go for staking.
So, what would you choose and why? Tell us in the comments!
