Jesse Powell, co-founder and outgoing CEO of Kraken, commented on his company’s decision to stop its US staking services in a series of tweets on February 9.
The leader of the Kraken comments on the settlement
Yesterday, Kraken reached a settlement with the US Securities and Exchange Commission that required it to pay $30 million and halt staking services for US clients. Kraken’s staking services would have constituted a securities offering.
Powell personally commented on these events today. He wrote:
“I sincerely hope that someone will prove, in court, that there is a legal, consumer-friendly version of custody staking that can be offered to American consumers…It will be a brutal, long and costly fight… but the industry and the United States will be extremely grateful.
Powell explained that Kraken didn’t fight the SEC because of a “risk-adjusted return,” implying an unlikely win wouldn’t be worth the legal cost.
He said while other companies may have the resources to defend themselves, the SEC targeted Kraken during a bear market and waited for him to lay off 30% of his staff. “They have all of our finances, a lot of leverage,” Powell said. “Maybe we looked weak.”
Powell made the comments in support of Paul Grewal, chief legal officer of rival exchange Coinbase. Grewal is currently trying to explain how Coinbase’s staking service differs from Kraken’s – likely in an effort to fend off possible SEC action.
Powell responds to officials and lawmakers
Powell also responded to SEC Commissioner Hester Peirce, who yesterday criticized her agency for failing to set out a compliance path for Kraken and other crypto companies.
He said “advice would be appreciated”, in writing:
“It’s not right, but I won’t tell you how to do it right. Want to know if X works? Try it and see what happens.’ approach helps neither industry nor consumers. We are not anti-regulation, but we need a clear path to operate.
Powell agreed with statements by Congressman Tom Emmer, a noted pro-crypto lawmaker who has spoken out against the SEC’s “purgatory strategy.” Powell writing:
“Congress must act to protect the domestic crypto industry and American consumers who will now go abroad to obtain services no longer available in the United States.”
Emmer also warned of staking-related opportunities moving overseas.
Powell argues for decentralized staking
Although Powell lamented the shutdown of Kraken’s staking service, he noted that users can engage in decentralized staking on Ethereum. He said he “strongly recommend(s)” this if one has the technical ability and minimum required holdings (32 ETH).
Powell also argued for an alternative staking model in response to a comment from NuCypher CEO MacLane Wilkison. There, Powell called demurrage-based staking a “superior model”. In this approach, unstaked tokens are reduced or burned, while staked tokens retain their normal value. Since this system does not require the distribution of rewards, it would likely be difficult for regulators to take action against it.
Jesse Powell’s comments carry weight because of his leadership position at Kraken. Although he announced he would be stepping down as CEO last year, his Twitter biography indicates that he still holds that position to this day and remains the most public-facing executive in the company.