SEC's crypto staking crackdown has uncertain consequences for DeFi: Lido Finance

Published at: Feb. 13, 2023

A crackdown by the United States securities regulator on crypto staking could have unintended consequences for decentralized finance (DeFi), according to the head of business development at Lido DAO.

In a Feb. 13 Bloomberg report Jacob Blish, who leads business development at Lido's decentralized autonomous organization (DAO), said the most significant risk would be if the SEC eventually concluded that no U.S. citizen can interact with crypto staking services, including protocols.

"The biggest risk I personally see as a U.S.-based person is if they come down and say you can no longer even interact with or contribute to these types of protocols."

"Then me, as a contributor to the DAO, does that mean I can't work on Lido anymore? Do I have to go leave and do something else?" Blish added.

The governance of Lido is managed by the Lido DAO with members from all over the world voting on critical decisions that steer the protocol.

In the wake of the SEC launching lawsuits and other enforcement actions against crypto firms, Blish joined a growing number of people in the crypto industry calling for more transparency around regulations and rules going forward, saying:

"The most disappointing thing is we as an industry keep getting asked for transparency, but then me as a U.S. citizen, I get no transparency and how [regulator's] decision-making process is going."

On Feb. 9 the SEC charged crypto exchange Kraken with "failing to register the offer and sale of their crypto-asset staking-as-a-service program" prompting the exchange to halt offering staking to its U.S. customers.

I honestly hope that somebody proves, in court, that there is a legal, user-friendly version of custodial staking that can be offered to US consumers. It’ll be a brutal, lengthy, expensive fight and a massive distraction but the industry and the USA will be extremely grateful. https://t.co/lhZPxykznD

— Jesse Powell (@jespow) February 9, 2023

The SEC's latest action saw Coinbase co-founder & CEO, Brian Armstrong, defend staking in a Feb. 9 Twitter post, saying it would be “a terrible path for the U.S.” if a staking ban was to happen.

Paul Grewal, Chief Legal Officer at Coinbase built on Armstrong's tweets on Feb. 10 asking for clearer rules for the industry.

"The public shouldn't have to parse complaints in federal court to understand what a regulator expects," Grewal said.