Coinbase To SEC: I’m Your Huckleberry

After Kraken’s settlement with the SEC over its staking-as-a-service program, there’s been a wave of concerns about whether other crypto exchanges’ staking services may be next on the SEC’s hit list. 🕵️‍♂️

Here, you can read last Friday’s Litepaper on the SEC’s crackdown on Kraken.

Many exchanges offer staking options: Bittrex, Binance, dYdX, Bybit, Coinbase, etc. 

But all eyes are on one of the biggest names in crypto: $COIN.

Coinbase CEO Brian Armstrong pre-emptively sent out a Tweet last Wednesday, warning that there were rumors of the SEC targeting staking:

1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.

— Brian Armstrong (@brian_armstrong) February 8, 2023

Shortly after the above Tweet, news broke that Kraken was ending its staking-as-a-service program for U.S. customers and paying a hefty fine to the SEC.

Then, yesterday afternoon, Armstrong Tweets again. He affirms that Coinbase’s staking services are not securities and lets the world know they are ready to defend it in court:

Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3

— Brian Armstrong (@brian_armstrong) February 12, 2023

Is Armstrong giving out another warning before another SEC announcement comes out? Who knows.

But the Tweet by Armstrong sounds more like the business version of Come At Me Bro

Judging from the responses to Armstrong’s Tweet, the crypto community appears happy to see Coinbase taking such a strong stand in defense of staking. 😊

Binance’s $BUSD stablecoin is under more scrutiny. 😖

Binance’s partner, Paxos, issued a press release early this morning (6 AM EST), stating that they “… will cease issuance of new BUSD tokens as directed by and working in close coordination with the New York Department of Financial Services (NYDFS).”

Here are the main points:

• Minting of new BUSD tokens will halt on February 21, 2023.
• Paxos will continue to manage BUSD reserves. 
• BUSD is and will always be backed 1:1 with U.S.-dollar-denominated reserves.
• Paxos to fully support BUSD as redeemable to onboarded customers through at least February 2024.
• New and existing customers can convert into USD or Paxos’s USD stablecoin, USDP.
• Proof-Of-Reserves Link

Additionally, Binance CEO CZ took to Twitter and addressed the issue:

#BUSD. A thread. 1/8

In summary, BUSD is issued and redeemed by Paxos. And funds are #SAFU!

— CZ 🔶 BNB (@cz_binance) February 13, 2023

The main points:

• Funds are SAFU.
• BUSD is wholly owned by Paxos.
• CZ anticipates BUSD’s market cap to decline over time.
• CZ says he has no info on any SEC vx. Paxos lawsuit.
• Assures that Binance will continue to support BUSD for the foreseeable future.
• Binance/CZ is, “reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm.”

Binance’s native token, $BNB, is taking a big hit on the news. 

At the time of writing, BNB is down -9.11% and on heavy volume. 

The day’s total volume is the highest since December 13, 2022, and the second-highest volume since November 10, 2022. 😱

Since our original article on staking in September 2022, significant changes have occurred in the crypto landscape. Kraken reached a $30 million settlement with the SEC over its staking program, discontinuing its staking-as-a-service for all U.S. customers. Similarly, crypto lending powerhouse NEXO terminated its Earn program for all U.S. clients. 

1. Introduction to Staking

Staking, in essence, is the act of committing your crypto assets (your stake) to support a blockchain’s transaction validation or security, earning rewards in return. Nonetheless, these rewards are often viewed as a type of interest generation by certain jurisdictions, potentially triggering regulatory scrutiny.

2. Staking, Lending, and DeFi

The term “staking” is often viewed as one of  three main avenues for passive income generation in crypto:

• Staking: As described above.
• Lending: Earning returns by lending your crypto or stablecoins to lending protocols.
• DeFi (Decentralized Finance): Encompasses staking, lending, and earning rewards for providing your crypto as liquidity.

3. Understanding DeFi and Lending

In the DeFi landscape, rewards are offered for lending your crypto and/or providing liquidity. The entire subject is vast and complex, with future coverage planned in the Litepaper.

4. The Diversity of Staking Rewards

Staking rewards can vary greatly across platforms and exchanges, as illustrated by the table below for Kraken**, Binance.US ($BNB.X), Coinbase ($COIN), and Nexo ($NEXO.X):

Note: NEXO canceled all rewards for US customers in response to BlockFi’s fine in early 2022.

5. The Rise of RPY (Rewards Per Year)

In place of traditional terms like APY (Annual Percentage Yield) or APR (Annual Percentage Rate), the crypto industry is adopting RPY. Most cryptos and exchanges treat RPY similarly to APY – it compounds.

6. Platform-Specific Returns

Platforms like NEXO (prior to Feb. 2023) and Crypto.com require you to own and/or stake their native token to gain higher returns. For example, Crypto.com’s Earn Program rewards (example in the table below) vary based on how much CRO you have staked and for how long you stake a specific crypto

According to this table, to earn a 10% p.a. (per anum) on your Polkadot you need to have more than $40,000 worth of CRO already staked and then stake your DOT for 30 days or have between $4,000 and $40,000 CRO already staked and then stake your DOT for 90 days.* 

7. Nominal Yields Vs. Real Yields

Nominal Yields are the rewards listed, whereas Real Yield is the expected return when factoring in other costs, factors, or changes like inflation rates (not listed). 

It should also be noted that calculations and factors for Real Yields can vary substantially from one week to the next. Additionally, the Nominal Yield may have an expected range but is not guaranteed. For example, Polkadot’s ($DOT.X) Nominal Yield is advertised/listed between 8% to 14%. 

Another factor to consider is that the rewards are not in US Dollars but in token/crypto your stake. Staking Cardano ($ADA.X) rewards you in ADA and so forth. 

The example below is from the May 20, 2023, Litepaper.

Source: www.stakingrewards.com

8. Risks Associated with Crypto Staking

Cryptocurrency staking is not without its risks. From outright scams to regulatory uncertainties, there’s plenty to consider. For instance, consider the case of Celsius ($CEL.X), which is now in bankruptcy, and everyone’s crypto is locked up and inaccessible.

9. Due Diligence – Your Safety Net

Investor awareness and vigilance are key. This is the crypto world, which isn’t quite the Wild West of 2010 to 2015, but the space still has issues and bad actors. Engage in thorough due diligence and never risk more than you can afford to lose.

A knowledgeable financial advisor can be a valuable asset in navigating the crypto landscape.

*Originally from September 9, 2022.

**As of February 2023, Kraken no longer offers staking-as-a-service to U.S. customers.