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With the growing rumor that the United States Securities and Exchange Commission (SEC) is planning to ban crypto staking services, expert, including Cardano founder Charles Hoskinson, have shared their stance on the matter. Hoskinson believes one of the prominent protocols in the industry, Ethereum, offers what he named problematic staking.
The rumor was first broken by Coinbase CEO Brian Armstrong on the premise that users' staking rewards when they lock their cryptocurrencies looks a lot more like dividends paid out to security token holders.
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
For Hoskinson, the absolute inaccessibility of Ethereum tokens locked in staking smart contracts makes them look like regulated products.
“Ethereum staking is problematic. Temporarily giving up your assets to someone else to have them get a return looks a lot like regulated products. Slashing and bonds not so good. Non-custodial liquid staking on the other hand is like the mining pools we've used for 13 years,” he said in a tweet responding to Armstrong’s first post.
According to the Cardano boss, his team approached the subject of staking on the protocol to a model one that is mostly controlled by the community instead of a few users.
Bad twist for industry
While the news is still tagged as a rumor, industry participants are notably gearing up for an actual ban by the market regulator. According to Hoskinson, the "fundamental misunderstanding about the actual facts of operation and design" will make the SEC categorize all staking products as one and the same irrespective of their differences.
He believes designing a centralized system instead of a decentralized one, as most staking protocols have done, is billed to hurt the industry. With the SEC empowered to regulate crypto pending a regulatory change in the U.S., the commission has brought a lot of enforcement actions against several companies, including Ripple Labs Inc and LBRY.