Welcome to Olliv the Above! This is our weekly series that takes a deep dive into the crypto news stories that have the crypto and web3 communities chattering. In this edition, we’re looking at crypto staking.
What is staking? Staking is a bit like putting money (in this case, your crypto) into a bank account (a staking pool) as collateral so that you can serve as a validator on any transactions that happen at said bank (the blockchain network) and receive a reward for your efforts. Instead of all the validators working for a centralized entity like a bank, staking is a method for governing a decentralized network.
Why do validators matter? Validators are individuals or groups of people who play a vital role in a blockchain network’s security if it’s using a proof of stake consensus mechanism. Validators sign off on transactions on the blockchain and receive tokens as a reward, making them trusted participants within the network. One of the ways they earn trust is by putting their crypto up as collateral. But it’s the potential to earn tokens in exchange for staking that is causing some shake-ups across the cryptosphere in recent weeks.
Crypto services firm Paxos has had a rocky week. The Wall Street Journal reported that the U.S. Securities and Exchange Commission (SEC) sent a notice to Paxos that outlined plans for legal action. The report came just hours apart from Paxos discontinuing Binance USD (BUSD), its Binance-branded stablecoin, on orders from the New York Department of Financial Services (NYDFS).
Paxos’ stablecoin, which has its value pegged to the value of the U.S. dollar, reached a market cap close to $23 billion in late 2022. Binance USD was also the third-most popular stablecoin on exchanges as of mid-February of 2023. Outflows of stablecoins from Binance picked up steam following the NYDFS’ order to stop issuing BUSD stablecoins.
What’s at stake?
Regulatory action from federal agencies like the SEC sends ripples throughout the crypto industry. The chief concern at the moment appears to be whether or not crypto staking services offer unregistered securities to customers. Kraken, a centralized crypto exchange, reached a $30 million settlement with the SEC to end its crypto staking service. Coinbase published a full-throated response to the lingering question of whether or not crypto staking services should be regarded as securities.
The definition of a security is “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” The SEC’s latest flurry of enforcement actions may not lend any more clarity as to what, exactly, is or isn’t a security, but it does demonstrate that regulators have a renewed focus on crypto services following the meltdown of FTX in 2022.
Finding love in a hopeless place
Lastly, let’s wind down the week’s biggest crypto headlines with a seasonally appropriate tie-in to Valentine’s Day. A recent survey suggests that being into crypto makes people more attractive to potential partners. Who conducted the survey? Binance. Putting aside the fact that one of the world’s largest crypto exchanges was asking people about love and crypto, it is interesting to note that 70% of participants said they would be more inclined to go on a date with someone if they found out they were interested in crypto. Neat! But beware of romance scams, people.
And that’s a wrap on this week’s crypto news! Need more updates like these in your life? Sign up for the Olliv newsletter to get industry insights delivered to your inbox. Remember, all crypto transactions are final and irreversible. Safeguard your personal information at all times while buying or selling digital assets like cryptocurrency.