2. SEC looking to ban staking in the United States

The Facts:

• Coincidentally with Coinbase CEO Brian Armstrong mentioning rumors about the SEC attempting to get rid of staking, the SEC fined Kraken $30 million for not registering “staking-as-a-service”.
• Following the fine, Kraken stated that all US based customers crypto assets will be unstaked next week, whereas international, non-US based clients’ funds remain unaffected.
• The SEC justified its decision by insufficient disclosures from CeFi firms as to how user’s staked assets are protected, as well as fixed staking APRs being promised, making staking a security in the SEC’s view.

Our Take:

• Staking is a crucial, fundamental security mechanism of any proof-of-stake network, with the SEC’s targeting of staking being a critical attack amidst a generally weak market throughout the crypto winter.
• Though the targeting was directed at CeFi actors offering staking under insufficiently disclosed terms, making it more similar to a yield product offered by many of the now bankrupt CeFi lending platforms, it is important to monitor the ongoing situation carefully.
• Given the rumors voiced by Coinbase, almost simultaneously with the crackdown on Kraken, there might be further repercussions to be expected, with regards to CeFi staking in the U.S., in the near future, whereas the international staking landscape appears to be in the clear as of now.
• Despite the setback for the industry, staking in general has not been in the SEC’s visor, which implies that decentralized staking via providers such as Lido and RocketPool potentially picking up soon, offering a gateway for continued staking from U.S. based clients.
• Lastly, the general debate, whether staking makes crypto assets de facto securities remains questionable, as regulators failed to give a clear indication, whereas industry experts analyzed this question in great detail, failing to categorize staked crypto assets a security, as based on the Howey Test.
• Regardless of regulators’ final verdict, decentralized staking, as well as future liquid staking offer various alternatives in order to mitigate the hurdles put in place by regulators confronting U.S. based CeFi staking providers.

3. Tokenized cash deposits offer a viable alternative to CBDC

The Facts:

• A report by OliverWyman and Onyx by J.P. Morgan introduces the concept of tokenized cash deposits, i.e., deposit tokens, providing a sound alternative to CBDCs, while eliminating the downsides of a CBDC.
• Deposit tokens represent cash and deposits held at commercial banks, while the digital, tokenized variant enables all types of engagement that stablecoins offer.
• Compared to CBDCs, which are controlled by one single centralized entity, the respective central bank, tokenized deposits are emitted by each commercial bank, being backed by the respective bank’s deposits and cash equivalents.

Our Take:

• Similar to stablecoins, deposit tokens enable peer-to-peer transaction of funds via the blockchain, with improved efficiency and instant settlement.
• Deposit tokens, in contrast to CBDCs, do not (e)liminate commercial banks, since CBDCs would most certainly make them obsolete and unprofitable by excluding them from the emission of cash on the one hand, while there would be no benefit of holding a CBDC at a commercial bank on the other hand.
• Because deposit tokens are a mere representation of commercial banks existing holdings and deposits, simply in digital form, the contrast to the existing banking system, though certainly not perfect, would not be altered and shifted in the direction of centralized control, but rather a digitalization of the cash as we know it.
• This also avoids the issuance of a CBDC in a wholesale manner, with questionable distribution mechanisms.
• Furthermore, commercial banks issuing deposit tokens have better customer knowledge and anti-money laundering expertise than central banks do, while simultaneously operating in a local and efficient manner, compared to a top-down monetary control of central banks.
• Tokenization of securities will be a large development in the future, with the tokenization of commercial banks holdings of abolishing cash by multiple individual entities being not very different from the creation of a stablecoin by a CeFi actor.
• Also, because commercial banks are incentivized to make profits, compared to central banks simply printing their “profit”, called seigniorage, i.e., the profit made from creating money, deposit cash tokens have extended functionalities that make them suitable for usage in DeFi and protocol interaction as well as transaction settlement.
• Overall, tokenized deposits are a stepping stone to introduce wide-spread tokenization of real world assets (RWA), fitting them in the existing framework of our decently regulated banking system, without the need to creating further, even more centralized and controlled means of money.

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