Kraken, one of the largest cryptocurrency exchanges in the world, has announced that it is beginning the process of withdrawing all staked ETH on behalf of its clients ahead of the Shapella upgrade. The move comes after the exchange was forced to shutter its staking as a service product in February following regulatory pressure from the US Securities and Exchange Commission (SEC).
The Shapella upgrade is a major milestone for Ethereum, as it will allow stakers to withdraw their ETH from the network’s staking contract for the first time since December 2020. According to a Twitter response from the platform’s support team, Kraken’s locked ETH will automatically enter the unstaking process for US clients after the upgrade goes live.
However, Kraken will not be able to withdraw its initial 32 ETH deposit required for staking, nor its associated rewards, until after the upgrade takes place. This has led some investors to fear that the unlocking withdrawals could trigger massive ETH onto the market, potentially crushing its price.
Despite these concerns, data from IntoTheBlock suggests that only a tiny fraction of validators have chosen to withdraw their stake so far. Kraken is exiting its validators because of the SEC action brought against its Ethereum staking product back in February. The SEC fined Kraken $30 million for failing to register its staking product as a security.
SEC VS. Stake
Staking as a service has become increasingly popular in the cryptocurrency industry, allowing retail customers to access staking rewards without any technical knowledge or the need to cross the 32 ETH threshold for running a personal validator. However, SEC chairman Gary Gensler has warned that such services and proof of stake in cryptocurrencies more broadly may qualify as securities under the Howey Test.
The closure of Kraken’s staking as a service product is a blow to the exchange, as it was a key offering for its customers. However, the move shows that Kraken is willing to comply with regulatory requirements and prioritize the interests of its clients.
The Shapella upgrade is a major step forward for Ethereum, and the ability to withdraw staked ETH will give stakers more flexibility and control over their assets. While there may be short-term volatility in the market as a result of the withdrawals, the long-term impact is likely to be positive for the ecosystem as a whole.