Editor’s Note: Welcome back to another issue of CoinSnacks. If you haven’t already noticed, our newsletter is getting a bit of a facelift this week. To top it off, we’ve completely shifted away from our old Email Service Provider to a new one, dubbed beehiiv.
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📌 MUST READS

Kraken Ends Staking in US After SEC Attack; Coinbase Vows to Fight

Crypto’s least favorite government agency is back at it.

The SEC and its chair, crypto public enemy #1 Gary Gensler, have put staking, the process of locking up crypto to secure the blockchain in return for coin rewards, firmly in their crosshairs.

The Kraken Settlement
The debacle began on February 9th with the news that the SEC and Kraken reached a settlement that would see the exchange end its staking program in the US while paying a $30 million fine.

Under the terms of the agreement, Kraken is un-staking all of its US customers' assets except for ETH, which will then eventually be un-staked following the Shanghai upgrade. US customers on Kraken will not be able to stake new assets going forward.

The basis of the SEC’s case against Kraken was that staking is a security, and because Kraken did not register their staking services with the SEC, they violated the law.

As Gensler put it:

This settlement, obviously, is not ideal for any US exchange offering staking services, as the SEC is trying to set a precedent.

But while Kraken settled, Coinbase – whose shares dropped 15% on the news – is not giving in so easily.

The Coinbase Response
Coinbase vehemently disagrees with the SEC’s assertion that staking is a security on the basis that staking fails the Howey Test.

The Howey Test states that an investment contract is a security if it is an investment of money in a common enterprise with a reasonable expectation of profit to be derived from the effort of others. Coinbase believes that staking fails these standards:

Thus, staking is not a security.

Now, to be fair, they do have a pretty big financial incentive to keep staking out of the SEC’s claws, as staking revenue accounts for 10% of their business. But still, Coinbase does make a fair argument.

Looking Ahead
Gensler has decided to go nuclear on crypto in 2023, and the fact that he was able to get Kraken to halt its staking services was a strong start in his ultimate goal of bringing crypto under his thumb.

But, Coinbase isn’t going to go down so easily.

Coinbase CEO Brian Armstrong has already said that Coinbase is prepared to fight for staking in court. The US stopping crypto staking would be a huge loss not just for retail investors, but for the entire US crypto market and the economy at large. We should encourage innovation, not drive it away.

Maybe one day the SEC will realize that.

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🏛️ REGULATORY FRONT

Paxos Ordered By Regulators To Stop Issuing Binance Stablecoin, BUSD

How many hits can Binance take?

That is the question we all find ourselves asking right now with the news that blockchain FinTech Paxos is no longer minting new BUSD (Binance Stablecoin) tokens following regulatory pressure.

As a refresher, BUSD is a stablecoin that was launched in 2019 by Paxos and Binance and is pegged 1:1 to USD. BUSD is currently the third largest stablecoin with a total supply of ~$15 billion.

An Investigation And An Order
The regulators at the SEC believe that BUSD is a security and that Binance and Paxos are violating investor protection laws by not registering the asset with the SEC.

To make matters worse, the New York Department of Financial Services (NYDFS) has also ordered Paxos to stop issuing BUSD.

So, staring down the barrel of an NYDFS order and SEC lawsuit, Paxos has decided to end its relationship with Binance.

The Consequences
Paxos’s move significantly affects multiple prominent crypto players:

Overall, things aren’t looking great for Binance’s future in the US. The regulators have taken a keen interest in CZ’s crypto playground, and CZ is already over it, telling crypto entrepreneurs to leave the US and their bothersome regulators.

Be Careful Out There
In December of 2022, we wrote the following which is worth repeating:

We have also been wary of putting faith in CZ and his Binance exchange. See here:

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📝 TWEET OF THE WEEK

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