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Staking allows you to earn rewards or “interest” for holding on to certain cryptocurrencies. It’s the basis of the proof-of-stake protocol—increasingly the top consensus mechanisms that underlies key blockchains including Ethereum. It’s a great source of passive income—especially for investors who have a meaningful amount of crypto to stake. Recently, however, it has come under fire as the SEC begins to crackdown on such offerings, arguing that staking and staking-as-a-service are subject to securities regulations. The most recent example, which dropped shortly before publication of this report, resulted in an agreement by Kraken, a crypto exchange, to pay a $30 million fine and end its staking offering to appease an SEC accusation that its staking product amounted to selling unregistered securities. Though experts worry the regulatory attention will cool demand for staking, it’s more likely that staking products offered will simply change. (By changing the benefits offered from “interest” benefits to rewards for staking, the mechanism will be less similar to existing securities.) If all staking practices come under fire, which many experts deem unlikely, it would potentially threaten the underlying proof-of-take mechanism, which has become increasingly popular due to its decreased energy intensiveness compared with proof of work. This could mean an even bigger problem for the crypto market.

Staking

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