NORTHSTAKE CEO: Staking should be regulated

Author: NORTHSTAKE CEO Jesper Johansen, Blockworks; Compiled by: Whitewater, Golden Finance

Staking is everywhere.

A growing number of service providers, banks, custodians, non-custodial staking providers and protocols are offering a variety of staking services – from re-staking to liquidity staking and staking derivatives.

Staking has truly become a force in cryptocurrencies, with the total market cap reaching an all-time high of $350 billion. Institutional investors and financial institutions are finally starting to understand blockchain’s new business models and the role of staking – like we’ll soon see an Ethereum Staking ETF from one of Wall Street’s giants.

But as staking grows in popularity, institutional investors are in many cases accessing permissionless staking protocols, staking and node infrastructure without proper risk management and anti-money laundering (AML) controls. Examples include mixing crypto assets on validator node infrastructure, or using permissionless smart contracts to deposit and withdraw sanctioned funds.

As our industry matures, we must face the fact that Regulated cryptocurrency companies will New guards appear. These companies are required to meet regulatory requirements and oversight when providing services.

We cannot in good conscience claim that custodians and staking providers are not regulated when providing staking services because these services are a) just renting servers, or b) non-managed or Fully decentralized. This is misleading and at worst misleads customers.

Blockchain technology and the reshaping of money, finance, and the web will be accomplished using distributed, and in some cases fully decentralized, networks that will act like the information on the early Internet Release ownership as well.

But existing regulatory frameworks and new cryptocurrency regulations will need to apply to institutions involved in staking crypto assets. For example, the European Union recently agreed to make all CASP entities obligated entities and subject to enhanced customer due diligence and strict anti-money laundering regulations. The directive will extend to running staking validator nodes, meaning the regulator will oversee all entities that facilitate custody and staking through centralized and decentralized counterparties.

How will regulatory agencies supervise pledges?

Cryptocurrency market capitalization is rapidly dividing into open, permissionless cryptocurrencies and regulated cryptocurrencies. Regulated cryptocurrencies are where institutions do business with known counterparties, creating avenues for retail investors through vehicles such as exchange-traded funds (ETFs).

Regulators will supervise at the entity level, which means that if the entity itself violates anti-monetary laws, securities laws or breach of sanctions, they require counterparties to file lawsuits. This adds to the already established practice of institutional clients conducting rigorous counterparty assessments of their service providers.

Furthermore, as we know from similar Internet regulation today, cryptocurrency regulation will focus on centralization. For example, the GDPR is enforced at the entity level rather than at the network or application level, requiring operating entities to demonstrate to authorities that their operations are compliant. This means that certain types of data cannot be stored in certain jurisdictions and the burden of proof lies with the operating entity.

The GDPR can be directly compared to EU cryptocurrency regulation, where institutions must demonstrate to regulators that their and their counterparties’ operations comply with current anti-money laundering and securities laws as well as future crypto regulations Currency Regulation.

Staking may not necessarily become a financial service

The intention of cryptocurrency native stakers is most likely just to earn passive income through staking, which does not mean that staking becomes a financial service in this case. But it’s hard to argue against regulatory staking because it showcases all the hallmarks of financial services through the lens of institutional investors.

Institutional investors have become accustomed to the same ease of use as crypto-native practices, which means they are inadvertently choosing services that have not yet been fully risk-assessed. Investors often realize too late in the process that they have breached their fiduciary duty to conduct thorough risk assessments of all counterparties.

From a regulatory perspective, after the Ethereum merger, the approval of the spot BTC ETF in the United States and the recent Prior to crypto fraud and bankruptcy cases, it was likely that little was known about how to securely stake in a compliant manner. As regulators gradually acquire the enforcement tools they need, the next explosion in the cryptocurrency space may be related to non-compliance with current and future cryptocurrency regulations or exposure to sanctioned entities through instrument staking.

We encourage all investors and financial institutions to ignore the complexities of crypto technology. Instead, they should ensure that they adopt well-known and accepted practices to ensure that they do not end up on the wrong side of regulation simply by choosing a service that they have not fully understood or checked.