Following the US Securities and Exchange Commission’s (SEC) suspension of crypto exchange Kraken’s staking services, South Korean financial regulators are expected to conduct a comprehensive review of the staking services of the country’s crypto exchanges.
This review could affect domestic crypto exchanges, including South Korea’s largest, Upbit, which launched staking in 2020. According to News 1, a financial authority official stated, “I know that it has been a problem overseas recently” in reference to staking services.
Although domestic exchanges didn’t mismanage customer funds, authorities will check for securities, especially when considering sanctions. Xangle, a platform analyzing crypto data, found that Kraken’s staking service is classified as a security by the SEC.
As staking is commonly viewed as a passive investment, regulatory authorities may take this into account when evaluating staking services. Regulatory authorities may consider staking services as passive investments when evaluating them.
The exchange official compared staking to depositing money in a bank and rejected the idea that it’s a passive activity:
In the case of deposits, the bank operates the money entrusted by the user and pays a certain level of interest on the amount deposited after making a profit, but in the case of staking, the digital asset deposited by the user is used to participate in the transaction verification work that creates blocks.
Additionally, an expert in the blockchain industry suggests that the outlook and tone of the global virtual asset industry may play a crucial role in deciding whether to categorize domestic staking services as securities as financial authorities scrutinize them.
The expert notes that the logic of safeguarding consumers can also be relevant to such services. Ultimately, the position taken by regulators and the resulting regulatory framework could have far-reaching effects on the virtual asset industry.
The Impact of Staking on Domestic Crypto Exchanges
Reporting regulations at the time of the Special Financial Transactions Act only looked at whether. Therefore, or not exchanges were subject to business reporting on the trading brokerage side and did not consider staking.
However, suppose financial authorities start looking into the staking service of domestic exchanges. In that case, they may examine the presence of securities, considering the SEC’s stance on Kraken Exchange.
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In the aftermath of the ‘Kraken Incident,’ staking may be consider as a passive act. And also, higher profits are promised when forming a common pool than when individuals’ stakes could be considered as a criterion for regulation.
Whether staking considers as a passive activity or not will determine the presence or absence of securities in staking services. And the view and atmosphere of the global virtual asset industry that arises as a result of this review could have a significant impact on the future of staking services.