SEC charged Kraken for the unregistered offer and sale of securities through its Staking-as-a-Service program (SaaS). Kraken has announced that it has discontinued its SaaS service. Gary Gensler in a short video published by the SEC explained that they don't object to staking mechanisms, but staking providers. This only has a positive effect on the blockchain industry, as the SEC is essentially encouraging self-custody and making it impossible for centralized exchanges to use staking for their business. Let's not rejoice prematurely, the SEC is unpredictable and may come out with some other announcement. Whatever the next announcement, trust that no authority with limited jurisdiction can stop a decentralized network like Cardano. TLDR The SEC requires staking providers to provide users with proper disclosures and safeguards required by US laws. The SEC has no objection to PoS networks and the staking mechanism. People using their own wallets for staking are not the target of the SEC. Cardano has liquid staking and there is no required minimum of coins so stakers don't need SaaS services. The momentum that drives stakers out of centralized exchanges is actually a small win. ADA coins can be easily hidden and easily moved to the other side of the planet. SEC focuses on staking providers Centralized exchanges provide a SaaS service. They are therefore staking providers. There are costs associated with providing a staking service, so exchanges take a fee. If you own coins of PoS projects such as ADA, ETH, DOT, ALGO, etc, you can stake them either from your own wallet or through staking providers. If you use a third party, i.e. a centralized exchange, for example, you make this decision based on the promised reward. The third-party should deliver on the commitments. However, this can be relatively difficult in some cases. They should use coins for staking. If they don't do something right, they could lose the coins. Ethereum uses slashing, so this risk is real. After the bankruptcy of FTX and other similar services, we know that third parties cannot be trusted. Exchanges can do completely different things with coins than staking. The SEC requires staking providers to provide users with proper disclosures and safeguards required by US laws. If you stake the ADA out of your own wallet, the SEC's raid on the exchanges doesn't concern you at all. The US exchanges appear to be losing a significant amount of staking-related business. People who stake coins on exchanges have several options. Either sell the coins and don't care about staking anymore, find another exchange abroad that provides a SaaS service, or stake coins from their own wallet, which is the safest option. Cardano has liquid staking Cardano is a leader in staking so the SEC's crackdown on the exchanges will have no impact on it. Cardaná has liquid staking right at the protocol level. Stakers can sell coins at any time, as the protocol does not lock the coins for a period of time during staking as many other protocols do. Another advantage is that there is no minimum amount of coins required for staking. This means that anyone with a small amount of ADA can participate in staking. There is no need to pool coins from multiple users together at a third party just to participate in staking. Cardano doesn't even have any slashing mechanism that could take away the coin of stakers. In order to get a staking reward, coin owners need to choose a pool that mints at least one block in every epoch and is not saturated. This is the only requirement. Each Cardano wallet allows you to delegate coins to a pool. The operation is intuitive and short. Similarly, redelegating coins to another pool is very easy. Users do not have to worry about the number of coins they have and do not have to worry about losing them. The Cardano protocol distributes rewards regularly every 5 days. Rewards are automatically included in the staking. Users just need to turn on their wallets for a few minutes to delegate coins. After that, they can turn off the wallet and just monitor the performance of the pool, for example, via Cexplorer. The staking properties of other protocols differ significantly. Usually, locking coins for a certain period of time is required. It is possible to lose coins in some cases. Users use SaaS services mainly because a certain minimum amount of coins is required for staking. If users do not have the required amount, they are forced to pool their coins with someone else. They are forced to use a third party. Third parties are a risk to decentralization Regulators are focusing on third parties, probably because many companies went bankrupt last year and people lost their deposits. The problem is centralization, i.e. CEOs who can make bad decisions or misuse users' deposits for anything other than what was declared. The SEC's crackdown on staking providers may have a positive effect on the blockchain industry in the sense that some people will start to self-custody their coins. Gery even says "not your keys, not your coins" in the SEC video. One might jokingly note that he is actually a decentralization maximalist. From a protocol perspective, it is definitely more convenient if the coins are not centralized at one point and people hold them themselves. Cardano allows this and people can stake, say, 10 ADA from their own wallet. The momentum that drives stakers out of centralized exchanges is actually a small win. Cardano is resistant to the decisions of regulators Cardano is a decentralized network and will survive similar regulatory actions. It is a single jurisdiction. It is possible that some exchanges including Kraken will decide to move their business to a more friendly country. If you have ADA in your own wallet, no one can take it from you and you only need to run your wallet for a few minutes to delegate. Even if the SEC bans staking pools from operating in the US, others will spring up in other territories. When China drove the miners out of its territory, the hash rate dropped for a short time. Then everything went back to normal. Cardano's PoS is built on very similar mechanisms to Bitcoin's PoW. In Bitcoin's case, miners had to move bulky ASIC miners. This was expensive and laborious. PoS networks have an advantage because coins can be easily hidden and easily moved to the other side of the planet. From one state's territory, you are able to run a staking pool in another state. Without the coordination of the entire world, blockchain networks are unstoppable. Bans on the use of cryptocurrencies would have a drastic impact on their adoption, but only in those countries where this would occur. In developing countries that welcome the blockchain industry, the situation is quite different. Neither power plants nor a grid ready for the extra load is required to operate a PoS network. It is enough to run a regular server to run a Cardano node. No additional power is required. Low power consumption can be a big advantage in some global crackdowns on cryptocurrencies. Conclusion The SEC wants to have oversight of staking providers. We will see what the next developments will be. It is possible that some exchanges will want to continue the staking business and will try to comply with the regulations. The question is whether this is possible and what it would mean for stakers. This is certainly not the last action by the SEC and other regulators. There are others in the pipeline and rumors abound. Whatever happens, Cardano is a very robust network and will survive as long as people keep the ADA in their own wallets. This relatively small thing can keep a global network running. Of course, staking pools have to run somewhere, but operators will be economically motivated to run them. Hopefully, however, regulation will go in a direction favorable to blockchain and encourage its development rather than its demise.
