Aussies still sold out after fines and possible SEC ban

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Richard Galvin, founder and managing director of Digital Asset Capital Management, which operates 14 of its own nodes to validate and secure blockchain projects, said staking has a valid place in the industry.

Staking is not a form of speculation, he said. It follows crypto ethics, there is no single owner, everyone can and should participate in networks to help secure and grow them, and staking is an essential part of it for blockchains in proof of participation.

[But] if a third party manages staking and subsidizes/smooths staking rewards, then it potentially becomes more structured and may have the characteristics of a financial product.

Rules to come

Staking is a method of securing a blockchain. Rather than relying on miners to solve complex puzzles and reward them with cryptocurrency, users can stake or pledge their assets to verify and confirm transactions in real time.

If they don’t check the blockchain accurately, their stake is reduced and they lose money. If they participate accurately, they are rewarded with cryptocurrency.

The SEC has taken the position that companies that offer this staking as a service to clients are effectively offering a financial product and should offer risk information similar to stocks or funds.

Regulators are toughening their stance on crypto trading, after a bear market wiped $1.4 trillion off investor balances in 2022, and high-profile frauds and meltdowns, such as Sam Bankman-Frieds FTX, threw doubt about the governance capacities of the industry.

In Australia, ASIC has beefed up its crypto enforcement team and is hiring lawyers, forensic accountants, investigators and data analysts to give the regulator more firepower to tackle the evolving industry. fast.

A key part of ASIC’s crypto strategy is our close cooperation and collaboration with other Australian regulators and overseas counterparts, an ASIC spokeswoman said.

Sharing information and ideas is a key part of this collaboration.

The world is examining how the SEC handles its crypto regulation, following the discovery last year that Mr Bankman-Fried had met with SEC boss Gary Gensler and discussed ways to determine which digital assets should be authorized for trading in the United States.

Since the collapse of FTX and Mr. Bankman-Fried’s arrest for embezzling up to $8 billion in client funds, Mr. Gensler and the SEC have launched a series of lawsuits targeting crypto firms.

Last Friday, the SEC sued Terraform Labs, the company behind the failed stablecoin TerraUSD and its co-founder Do Kwon for fraudulent deception of investors.

Australian crackdown

The U.S. regulator said the crypto products that Terraform Labs sold largely an algorithmic stablecoin that relied on live trading to maintain a peg to the U.S. dollar amounted to financial securities.

The SEC alleged that Mr. Kwon and Terraform repeatedly asserted that the tokens would increase in value and misled investors about the stability of TerraUSD.

But the value of the token and its related luna cryptocurrency plunged to near zero last May.

ASIC has rolled out its own enforcement actions against local crypto firms, arguing that they are not obtaining proper licenses or disclosing proper risks.

Sydney-based Holon Investments was forced to shut down three retail crypto funds last November after the regulator issued a halt order for failing to outline investor risks in its market determination documents target.

Holon Investments intended to issue its funds as managed investment schemes.

That same month, ASIC sued crypto-fintech Block Earner in federal court for allegedly offering unlicensed financial products to retail investors through its DeFi service.

Block Earner had sought to tie investors to participation opportunities in large automated borrowing and lending pools, paying a reward for the practice.

The Australian Financial Review understands that since ASIC’s allegations in November, Block Earner has applied for an Australian credit license.

Staking rose to prominence as a means of making money after Ethereum’s merger last year, when the world’s largest smart contract network transitioned its underlying technology from a proof-of-work (mining) to a proof-of-stake (staking) mechanism one.

Custodial exchanges such as Kraken began rolling out products that gave investors ways to deposit their digital assets, which Kraken would then stake on their behalf. The rewards were then returned to the customer.

Binance Australia, Coinstash, Crypto.com, Coinspot, and KuCoin are all platforms that allow Australian users to pledge crypto assets to secure various blockchains and then earn rewards.

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