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Decentralized staking token LDO surges as Coinbase’s Brian Armstrong warns of a possible SEC crackdown on staking

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The Securities and Exchange Commission could be coming for staking, according to Coinbase CEO Brian Armstrong—and, if so, this could open the door for decentralized tokens like Lido’s LDO to take over the staking business of U.S.-based exchanges.

Armstrong’s comments led to the price of Lido’s LDO token, which is used for staking but is not tied directly to the U.S., soar as high as 23% to $2.97 on Wednesday before retreating, according to CoinMarketCap. It was still up 2.72% at $2.50 on Thursday morning on an otherwise down day for crypto.

The two most popular tokens Bitcoin and Ethereum were both down about 1.1% to around $22,600 and $1,600 on Thursday morning, respectively.

On Wednesday, Armstrong tweeted the rumor of an SEC crackdown on staking for U.S. customers, but added that he hoped it was not the case because staking is not a security.

1/ We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.

— Brian Armstrong (@brian_armstrong) February 8, 2023

“Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” he said in the tweet.

Staking is when investors can lock up their cryptocurrency for a certain period of time to support the operations of a blockchain and earn yield in exchange.

The threat of a crackdown by the SEC and Gary Gensler, the self-proclaimed sheriff of what he thinks of as the crypto “Wild West”, could have ramifications for U.S.-based exchanges Kraken and Coinbase. Both companies have recently begun to offer staking to customers in a simplified way that doesn’t involve advanced technical knowledge.

If that door closes, it’ll be to the advantage of Lido and other decentralized tokens like Rocket Pool, which are based outside of the U.S.

Once limited to blockchains outside of Bitcoin and Ethereum, staking has become more notable after Ethereum’s switch to proof of stake from proof of work last year as a result of its merge update. The update instantly lowered the carbon footprint of the Ethereum network by 99%, but it also caught Gensler’s eye.

The SEC chairman said in September that cryptocurrencies and other intermediaries that offer staking could run afoul of U.S. securities laws.

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