Cryptocurrency exchange Kraken has settled with the Securities and Exchange Commission (SEC), which charged it with securities violations regarding its staking services.

The SEC charged Kraken with “failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.”

The settlement required the exchange to pay $30 million and to shut down the service. Kraken did not admit or deny the allegations in the SEC’s complaint.

“Staking is a process in which investors lock up—or “stake”—their crypto tokens with a blockchain validator with the goal of being rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain,” the SEC announcement read. “When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms, with very little protection. The complaint alleges that Kraken touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts.”

According to the SEC's complaint, the case "concerns the illegal unregistered offer and sale of securities involving the staking of crypto assets." The complaint alleged, "Through the Kraken Staking Program, Defendants have offered and sold investment contracts without registering the offer or sales with the SEC as required by the federal securities laws, and no exemption from the registration requirement applied. The absence of any registration statement means that investors have lacked material information about the Kraken Staking Program."

Commissioner Heather M. Pierce disagreed with the settlement action.

“We have known about crypto staking programs for a long time,” she wrote in dissent. “Although it may not have made a difference, I should have called for us to put out guidance on staking long before now,” rather than “speak[ing[ through an enforcement action.”