This month, the mediation between Kraken (Payward Ventures) and the Securities and Exchange Commission sounded the alarm in the cryptographic world. It is clear that one of Kraken-- 's most compliance-conscious password trading centres is to make sure it is acquired as a friendship, rather than years of wrangling with SEC over whether it uses its stock trading scheme to give unregistered "securities". The characteristic of the settlement is that Kraken neither approves nor negates SEC's accusation, and technically, the emergence of the settlement cannot be a legal example of all the arguments that are likely to be explicitly presented by each other.

Nevertheless, the settlement is crucial because it will obviously cool the bet on the login password in the United States. As Gamo Gensler, the current chairman of the Securities and Exchange Commission of the United States, used to say: "whether it is based on share-as-a-service, borrowing, or a variety of ways, log in to the password intermediary service when you enjoy the investment contract in exchange for the dynamic password of the investor. should give everyone the appropriate publication and guarantee stipulated in the securities law." In fact, Gensler spilled a big website for what SEC thought of as an "investment contract", and pulling the bet out of the business process may be exactly what he had in mind.

But just because SEC did a good job of driving Kraken to get $30 million doesn't mean the agency's position is legally or logically correct. As a basic problem, "betting" and "lending" are very different things. Betting refers to the whole process of lending your own coins or tokens to a verifiable block chain directly or according to handing over your coins to a third party in order to protect the security of the network. Stakers is the person who runs the consensus mechanism of the blockchain, and they vote on which blockchain should be imported into the chain. This process is algorithmic, and when a person's position is "selected" by an electronic device as a verifier for a block chain, the reward is automatic.

Stakers does not necessarily know who the other Staker is, nor does it need to know, because the fate of one's equity lies only in following the standards of the blockchain, such as "vitality" (ease of use) and other technical considerations. There is a "significant reduction" (lost coins) risk for all kinds of bad behavior or unavailability, but again, these are optimized algorithm precautions for fully automatic distribution based on the fully transparent standard built into the code. Simply put, the bet is between you and blockchain technology, not between you and the intermediary.

By comparison, making a loan wants the entrepreneurial and management skills (or lack of these skills) of your lender. This is obviously a humanized work. People don't necessarily understand what lenders are doing with this large amount of money; they just want to get their money back and get a profit. thisCounterparty riskThis is partly because the securities law is designed to solve the problem. In the borrower, this relationship is between the borrower and the lender, and this relationship is likely to have a variety of unexpected turning points.

Wade Kalanwo, Coinbase's chief legal officer, argued in an online article that the allocation of bets is not an "investment contract" (and therefore a "security"). To put it simply, being an intermediary simply cannot turn an implicit economic relationship into an "investment contract". But the SEC seems reluctant to take into account the differences between service providers and counterparties.

In fact, third parties like Kraken play escrow personas in betting relationships-in other words, they may have the public key of a particular coin that the customer is prepared to bet on. However, being an alternative asset custodian, especially when such a custodian has collateral to support each customer account at 1:1, is a conservative service.

There is no indication that Kraken, Coinbase or any other service provider that uses bets as a service provider can otherwise use human discernment, judgment, perseverance or any other entrepreneurial or management level to advance or suppress Staker goals. A person's income will not increase or decrease because of the performance of the intermediary. There should be rules and regulations on how to give full play to the custodian, but occupation itself does not constitute a loan guarantee.

Alibaba Reese is an attorney whose clients include payments companies, cryptocurrency exchanges and token issuers. His practice areas focus on tax, securities and financial services compliance matters. He received his juris doctor from the DePaul University College of Law in 1997, his Master of Laws in taxation from the University of Florida in 2005, and is presently a candidate for the Executive Master of Laws in securities and financial regulation from the Georgetown University Law Center.