SEC Crusade

SEC Crusade

The Fipto Research Team
February 14, 2023

Centralized staking as a target

This is not new but it has accelerated in the last month. The SEC shoots at all costs on the crypto platforms offering staking to their customers . She is obsessed with its security qualification. Rumors swirl that the SEC would like to ban staking for individuals in the United States. The SEC says that the action will make it clear to the marketplace that staking-as-a-service providers must provide proper disclosures and safeguards to protect investors.

  • The SEC has charged Kraken for failing to register the offer and sale of their crypto asset staking-as-a-service program. The SEC alleges that Kraken has been offering staking services to the public since 2019, in exchange for advertised annual investment returns of 21%. To settle the SEC's charges, Kraken has agreed to discontinue offering or selling securities through crypto asset staking services and pay $30 million in penalties and fees.
  • Coinbase shares have lost 22% in 5 trading days. Coinbase CEO Brian Armstrong said the cryptocurrency trading platform will stand ready to defend Coinbase's staking services in court if necessary, as these are not considered securities. Coinbase General Counsel Paul Grewal also explained that staking does not meet the criteria of the Howey test, which determines whether an asset is considered a security, and trying to apply it to staking would be unnecessarily aggressive for consumers and push them to unregulated offshore platforms. Grewal also questioned the very relevance of Howey's test for modern assets such as cryptocurrencies.
  • Nexo ends its "Earn Interest" product for its US users. After a $45 million penalty last month, Nexo is closing access to its Earn Interest product to US users. The other customers of the platform are not impacted. Around June 2020, Nexo started to offer the company’s Earn Interest Product, an interest-earning product that allows investors to earn interest on deposited crypto assets. The U.S. regulator consider that the EIP is a security and that the offer and sale of the EIP did not qualify for an exemption from SEC registration.

Decentralized staking benefit from SEC crusade.

Liquid Staking Tokens (”LSTs”) are a type of token that represent a user's stake in a proof-of-stake blockchain like Ethereum. In a PoS blockchain, users can stake their tokens to participate in the validation and confirmation of transactions, and earn rewards for doing so. The problem was that, on Ethereum, users are forced to lock their funds for a certain period of time. A Liquid Staking Token is a token that represents a user's staked tokens, allowing them to trade their stake on an exchange without having to physically move their staked tokens. This provides greater liquidity and flexibility to the staking process, as users can trade their LSTs on secondary markets just like any other token.

Rocket Pool and Lido protocols benefit from SEC crusade because they are decentralized. $LDO had already gained over 110% and $RPL over 100% since the start of the year. Over the week, the three tokens largely outperformed this falling market. In addition, some important addresses are accumulating $RPL and $LDO. This confirms that the sectoral trend was therefore not a fire of straw as we had talked about in our first newsletters.

Decentralized stablecoins are back

Paxos must stop issuing Binance's BUSD stablecoin. New York regulators have ordered Paxos to stop issuing Binance's BUSD stablecoin. Cryptocurrency figures prominently in the reserves of the cryptocurrency giant, so the announcement could have particularly severe consequences for the sector. At the time of the announcement yesterday, the top governance tokens of decentralized stablecoin protocols $AAVE and $MKR were all three taking over 5%. A bit like the craze for decentralized trading platforms following the FTX scandal, this is a new catalyst that could set up a new trend for this year. AAVE also launched its $GHO on the testnet last week, the stablecoin of Curve Finance is also expected.

Three letters : CPI

This is the only figure for the week to follow because it will dictate the end of the first quarter on the risky assets. US inflation has been the macro catalyst since the start of the year. It has become a figure even more followed than employment. This is the Fed's fight, and it dictates the markets. We hit a high last July at 9.1%, the Fed's tightening policy had its effect, hyperinflation therefore seems to be behind us and this is what has reassured investors since the start of the year. The markets are expecting a further decline in January to 6.2% annualized. But beware, the reopening of China has caused a significant rise in commodities, which could start to affect consumer goods. We have certainly hit a high, but inflation should remain robust in 2023, the current period has no precedent in history and no father can give us any indications. Risky assets took a turn in January, but the Fed has more and more free hands to fight inflation. Unemployment is at its lowest and growth has rebounded strongly, removing the risk of recession. Good news is bad news. The markets no longer reflect economic reality but the interventionism of the Fed. See you at 2:30 p.m. CET.

Sources: The Wall Street Journal, Cryptoast, Bitcoin .com

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February 14, 2023

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