Forex_Shark made some comments in an AMA this week that I wanted to offer some thoughts on. This article will discuss the impact that the recent Kraken staking news could have on DeFi platforms.

Kraken, one of the largest cryptocurrency exchanges, has recently reached a settlement with the SEC, in which it has agreed to stop allowing staking on its platform. This move comes as part of a wider crackdown by the SEC on centralized exchanges, in an attempt to limit the risks to both consumers and institutional investors.

It’s no secret that the crypto industry has become a target in recent years, with the SEC at the front of the battle. The agency has been ramping up its efforts to regulate the crypto space and has been particularly focused on centralized exchanges. These exchanges have been singled out because they often provide a single point of failure, making them susceptible to hacking, theft, and other security risks. And, being centralized, their CEOs, boards of directors, and investors are all traceable.

A large issue is the amount of attention that the bad actors in the crypto space have gotten. The recent settlements and problems faced by other centralized exchanges, such as FTX, Voyager, Celsius, and BlockFi, only serve to shine a spotlight on the risk that come with staking on centralized exchanges. Some of these exchanges have collapsed, declared bankruptcy, or had major problems with user funds, often/mostly leaving investors high and dry. In an effort to avoid these types of problems, the SEC has been cracking down on centralized exchanges, putting pressure on them to adopt better security measures and to limit the risk.

Now, Nexo has also agreed to stop allowing users to earn interest on its platform in the US. This is part of a larger trend in the crypto space, where centralized exchanges and platforms are being targeted by regulators. The aim is to ensure that consumers and investors are protected from the risks associated with these platforms and to limit the exposure of these companies to potential security risks.

What does this mean for DeFi and yield farms?

Forex had an interesting comment about that. Paraphrased, he said:

The SEC meeting is happening and the big news is that Kraken will cease staking as part of a settlement agreement with the SEC. There have been rumors that staking may be cracked down on, starting with the US. This is actually good news for us, as this type of ban can only be enforced through a centralized entity.

It can’t be enforced at the user level and can’t be imposed on a fully decentralized platform. When centralised staking platforms get shut down, it drives the market towards DeFi. There are billions of dollars sitting on these platforms, and that money has to go somewhere. So, the bottom line is that regulation can be good news for you, as long as you’re not the one being regulated.

So, if centralized exchanges halt staking in order to comply with (or avoid) SEC attention, there could be a wave of investors seeking yield in other places. And, they’re going to be seeking reliable platforms. They aren’t going to be using the same “risk capital” mantra that so many DeFi investors adopt, with relatively small bags. Rather, they could be bringing millions to DeFi. They’ll be looking for audited platforms that have a good track record of security, good yield, and protection of customer assets. In short, I’m describing the Animal Farm.

Unlike centralized exchanges, DeFi platforms are built with smart contracts on the blockchain itself. While there have been some “rug-pulls”, these have separated reputable platforms from the shady ones.

An advantage of DeFi is the transparency of its operations. DeFi platforms are built on blockchain networks, which provide a tamper-proof ledger of all transactions. This means that investors can see exactly where their funds are going and how they are being used, giving them complete visibility and control over their investments.

The Animal Farm has active developers who are constantly working to improve their platforms and add new features. It is on the verge of launching a group of new features, offering investors a more dynamic and flexible investment option than centralized exchanges.

The attention of the SEC on centralized crypto staking could be opening the door for DeFi to take center stage. With its security, transparency, and active development community, DeFi offers investors a more secure and dynamic option for earning interest on their crypto assets.

And, the Animal Farm is one of the most stable platforms in DeFi. They went offline for months in order to make sure the platform was safe and upgradeable. And, with new products coming in weeks/months, it could provide just the investment opportunity that CeFi increasingly cannot provide.