That seems like a traditional contract between provider and consumer more than a security.
If I own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent.
ChatGPT (for what it's worth): When people talk about "securities," they usually mean financial instruments such as stocks, bonds, and derivatives, rather than specific types of payments made to shareholders. In this broader sense, dividends are not considered securities themselves, but they are closely related to the securities that represent ownership in a company.
What does there being a contract have to do with a security. Bonds are contracts that pay at at fixed points and rates, they are fixed-income securities...
Bonds are a "promise" because they can fail - the issuer can fail and the bonds can become worthless. So there may be a reasonable expectation of return, but still risk. Staking is not the same, because it is the algorithmic inflation of the currency itself, and can't "fail" the same way.
Bonds are a promise, because they are a contractual obligation to satisfy "the promise". That's what a promise is. That the fulfillment of the promise is predicated upon the efforts of another, is what makes a promise a security.
Thanks, this phrasing makes more sense to me than the other explanations I've read.
But if kraken already is approved to hold crypto for users, what makes staking it different? Aren't they already promising just to hold it and return it? It feels like the same promise.
Well in this case it depends on their conduct and ability to do so which isn't solely algorithmically determined as is evidenced by the numerous other centralized stakers that have collapsed, taking the money with them. I'm under the impression Kraken can take the crypto and do what they want with it, so long as they keep their promise to you. That's exactly what a security is.
I think the distinction is that with a bank's savings account, you are guaranteed your money back, they have all sorts of rules that apply to banks to make that true. Obviously crypto folks don't want it characterized as such an account as that would result in even more onerous limitations. In a decentralized system, there is no person in the way, whose conduct can change whether or not you get the money.
Staking "can't fail" in the same way that a sovereign bond can't fail, since the issuer can always make the promised payments by issuing more worthless tokens. In other words, staking can absolutely fail.
It might be possible that you have a point but you have to expound on it for it to be clear. When you jump to "in other words..," I don't know what you're talking about.
> own a dividend-bearing stock on Charles Schwab and they don't pay me the dividend, it's not because Charles Schwab offered a security, they're just being fraudulent
When you buy a dividend-bearing stock on Charles Schwab, you're given access to shareholder documents describing what you are owed under what conditions. There is no analog for crypto. The investor's interface is with Kraken, not with the chain.
This isn't an insurmountable problem! But every staking product I've seen mimics a high-yield savings account more than the FX-linked security that it is.
I don't understand how they're different. Charles Schwab is a middleman to the company (say Exxon). Kraken is a middleman to the Blockchain. That seems like a clear analog, and not only that, but the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents, which represent legal contracts, but are still susceptible to human error.
> Charles Schwab is a middleman to the company (say Exxon)
Charles Schwab is a middleman to the market. Exxon separately puts out disclosures. Charles Schwab and Exxon never need interact for this to work.
> Kraken is a middleman to the Blockchain
Agreed. Which is why it should be regulated like Charles Schwab.
The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must.
> the code, the law of the Blockchain, is certainly more publicly available and less prone to change or failure than shareholder documents
This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true.
> The SEC isn't going that far. It's just saying if you want to take peoples' money and pay a return on it, you need to do the things others who do the same must.
Like what? I'm not sure I understand. They're both approved to hold things for consumers, which is already a promise to redeem upon request. Staking feels like the same thing. Is the confusion because ETH itself has not yet been explicitly ruled to be a security?
> This is a valid hypothesis. To the extent it's been tested, the opposite has been (inconclusively) true
Would be an interesting debate but maybe let's not go down that rabbit hole :D
Broker-dealer regulations. Related-party transaction disclosures, audits, et cetera.
> both approved to hold things for consumers, which is already a promise to redeem upon request
What Kraken is and isn't approved to do is uncertain. They have a Wyoming banking license, but it's unclear what that permits with respect to staking and custody.
The actual outcome of this fine isn’t going to be that staking companies and exchanges start registering their products as securities. There’s just way too much regulatory overhead for that to make any sense. The actual outcome is that US customers will access staking through non-US exchanges and decentralized services, where they may face more risk. I think everyone involved in this decision understands that, including the SEC.
