Ben Strack

<div id="highlights-block_61c201e74d35d" class="highlights">
 <ul>
 <li>Staked enables investors in proof-of-stake networks to easily and securely compound their holdings</li>
 <li>Large industry players will continue building out capabilities through acquisitions to ensure competitiveness, according to Ryan McCulloch, investment banking associate at M&#038;A advisory firm Architect Partners</li>
 </ul>
 
</div>



<a href="https://www.kraken.com" target="_blank" rel="noreferrer noopener">Kraken</a> has acquired staking platform <a href="https://staked.us" target="_blank" rel="noreferrer noopener">Staked</a> as a way to expand its number of supported networks and enable a non-custodial alternative to the company’s existing custodial staking service.



Staked enables investors in proof-of-stake networks to easily and securely compound their holdings, according to Kraken’s acquisition announcement on Tuesday. The company did not disclose the sum of money it paid for the staking platform.



“We are excited to add Staked to our portfolio of yield products, which has seen great uptake by a growing population of crypto investors,” Kraken Co-founder and CEO Jesse Powell said in a statement. “Staked is highly complementary to our existing staking business and will allow us to further strengthen our product offering through world-class infrastructure for clients who prefer to retain custody of their staked assets.”



Kraken’s buy of Staked is its fifth acquisition in 2021, according to the company. Its client base, which totals about 8.5 million, trades more than 90 digital assets and 7 different fiat currencies globally.



As a provider of security, access and service for digital assets on its platform, Kraken noted <a href="https://blog.kraken.com/post/12265/kraken-to-allow-a-new-way-to-earn-crypto-rewards-with-staked-acquisition/" target="_blank" rel="noreferrer noopener">in a blog post </a>that the company does not believe in “not your keys, not your coins.”



“But, we do respect and support our clients who do – and their right to retain custody over their crypto,” the post states.&nbsp;



A Kraken spokesperson did not immediately return Blockworks’ request for further comment.



The market capitalization of the top 30 proof-of-stake assets reached an all-time high of $594 billion during the third quarter, according to <a href="https://fs.hubspotusercontent00.net/hubfs/6693156/Staking%20Reports/State%20of%20Staking%20Q3%202021%20by%20Staked.pdf" target="_blank" rel="noreferrer noopener">a report by Staked</a>, which was a 65% increase from the prior quarter.&nbsp;



“Kraken clearly shares our commitment to supporting proof-of-stake networks, having a security-first mindset, and unwavering focus on customer experience, which makes them an ideal partner,” Staked CEO Tim Ogilvie said in a statement. “Combining our businesses will enable us to provide a more seamless experience and expand our product offering to meet our clients’ needs in staking and beyond.”



<h3 class="wp-block-heading">Staying competitive</h3>



About <a href="https://cms.blockworks.co/kraken-clients-earned-100-million-in-staking-rewards-in-first-half-of-2021/" target="_blank" rel="noreferrer noopener">$100 million in rewards</a> had been paid out to Kraken’s clients in the first half of 2021. The total number of assets staked on Kraken had reached $10.8 billion, as of Sept. 20, and Kraken Chief Product Officer Jeremy Welch <a href="https://cms.blockworks.co/kraken-is-building-out-staking-consumer-capabilities-and-monitoring-nft-space/" target="_blank" rel="noreferrer noopener">told Blockworks at the time</a> that the company shifted its focus on professional traders and institutions to bringing a full offering directly to consumers.&nbsp;&nbsp;&nbsp;



Kraken launched its staking service last year, which allows users to earn rewards — which Kraken pays out twice a week — on top of their holdings and grow them further by compounding those future rewards.



Ryan McCulloch, an investment banking associate at M&amp;A advisory firm Architect Partners, said that proof-of-stake blockchain protocols are gaining prominence and will likely continue to do so with the transition of Ethereum from proof-of-work to proof-of-stake.



<blockquote class="wp-block-quote">“Users and token holders of these proof-of-stake blockchains have a clear financial incentive to participate in running the respective blockchain,” he told Blockworks. “Kraken, and other crypto-asset financial services firms, must offer this capability to their clients, both individuals and institutions.”</blockquote>



The deal follows Kraken competitor Coinbase’s <a href="https://blog.coinbase.com/coinbase-to-acquire-leading-blockchain-infrastructure-platform-bison-trails-f879654421d6" target="_blank" rel="noreferrer noopener">acquisition earlier this year of Bison Trails</a>, which McCulloch called a “highly comparable” staking and blockchain infrastructure company to Staked.



Emilie Choi, the company’s president and chief operating officer, <a href="https://cms.blockworks.co/coinbase-president-crypto-on-pace-for-1-billion-users-within-5-years/" target="_blank" rel="noreferrer noopener">said during a webinar</a> at the Bloomberg Financial Innovation Summit last week that Coinbase would try to acquire “incredible” companies it sees in the space.&nbsp;



<blockquote class="wp-block-quote">“This transaction demonstrates the need for large crypto exchanges to own the infrastructure layer of the blockchain and provide a broad array of services to satisfy the needs of retail and institutional investors,” McCulloch said of Kraken’s latest deal. “Large players such as Coinbase, Kraken [and] Binance will continue to acquire and build out their capabilities to ensure competitiveness.” </blockquote>



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<hr class="wp-block-separator"/>

Kraken Acquires Staking Platform Staked

Sam Reynolds

<div id="highlights-block_61793d020e1d4" class="highlights">
 <ul>
 <li>The market cap for the top 30 Proof of Stake (PoS) digital assets hit an all-time high of $594 billion, or just over half of crypto’s total market cap</li>
 <li>Thanks to the growth of PoS, projected staking rewards are set to hit almost $18 billion representing a 43% increase over last quarter’s projections</li>
 </ul>
 
</div>



Two years ago when the concept of staking was first announced it was a relatively niche vehicle limited to the Tezos and Cosmos, the first Proof of Stake crypto protocols. Fast-forward to today and the industry is an $18 billion behemoth, thanks to Eth 2.0’s Proof-of-Stake campaign and <a href="https://cms.blockworks.co/institutions-staking-eth-2-want-internet-bonds/" target="_blank" rel="noreferrer noopener">institutions’ quest for internet bonds</a>, with over two dozen PoS protocols on the market.  



A recent quarterly report from Staked about the state of the staking market quantifies this growth industry.&nbsp;



Staked reports that the overall market cap of PoS protocols now accounts for over 50% of crypto’s total market cap, or $594 billion as of September 30. While in some regards this is thanks to the general crypto bull market — which accelerated the growth of the top tokens like Ethereum, Cardano, Solana and Polkadot — there is also a lot to be said about the rise of smaller protocols which account for most of the 34 mainstream PoS protocols on the market.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/MVmqyAjb7Sw2WqYssNCoHj9zTIqNM_zifeclUBB25qdnj11cKqvcee2QRV3RUq6qBwyMnfr6IuyRAnjqkerOJx_WKtFl_CI-eaxZ0dhsYydkqj02wpr9t502tR86v_psD3ZApspk" alt=""/></figure>



The report highlights peer-to-peer connectivity and IoT protocol Helium, which has seen its token rise by nearly 1000% over the last year, moving to PoS as another success story for the mechanism.&nbsp;



And with all this growth comes the deployment of venture capital. During the past quarter Staked says there was $8 billion in venture capital injected into the sector such as Helium’s $111 million raise, Solana’s $314 million, and Avalanche’s $230 million.&nbsp;



<h3 class="wp-block-heading">The Great EIP-1559 Burn-off&nbsp;</h3>



Aside from staking, the other major value prop Ethereum has is its periodic burn-offs. Implemented with this summer’s <a href="https://cms.blockworks.co/ethereum-hard-fork-means-lower-gas-fees-and-higher-eth-pricing/" target="_blank" rel="noreferrer noopener">London Hard Fork</a>, EIP-1559 is something of a cross between a share buy-back and a deflationary measure.



Projections indicate more than 3 million ether, or roughly $12 billion, will be removed from circulation over the coming year, representing 2.5% of the current outstanding supply of 117 million ether.&nbsp;



Staked uses the metaphor of ‘price-to-generated fees’ as being similar to a listed company’s price-to-earnings ratio to point out that ether would trade at a 29x ratio similar to tech mega giants like Apple, Facebook, Alphabet and Amazon albeit with much better growth.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/sdgaTQUtQ8z7KpH8PN9E_0jejlle03Djw2G_3hdqmS9a8mfHe1bfy9hioo4oAjZ5Dx0Bh2aGjdI8Tkv3wmX7jAO6kHPV88JatYJnonR6wBQXEaOMG-LFb6vqyelkXSXbz-xi8KIZ" alt=""/></figure>



<h3 class="wp-block-heading">What will regulators do?</h3>



Regulators are bound to take notice of an $18 billion industry, and it’s only a question of when the SEC will take action.&nbsp;



While a <a href="https://theblockchainassociation.org/securities-law-considerations-for-staking-services/" target="_blank" rel="noreferrer noopener">legal briefing</a> created by the Blockchain Association is steadfast in its thesis that staking service arrangements fail to meet the four criteria identified by the Howey Test, 1933 Supreme Court case for determining whether a transaction qualifies as an investment contract, some legal scholars see the <a href="https://www.bloomberg.com/news/articles/2021-10-21/wells-notice-whatever-coinbase-is-still-paying-users-5-rates" target="_blank" rel="noreferrer noopener">SEC’s service of a Wells Notice</a> to Coinbase as a prequel to the inevitable. 



“This is part of a broader dichotomy happening where the innovators are innovating at a much faster clip than ever before, and the regulators, the legal system and lawmakers can’t keep pace,” Bloomberg quotes R.A. Farrokhnia, a Columbia business school professor, as saying.&nbsp;



While the SEC has yet to offer definite guidance on the matter, the <a href="https://cms.blockworks.co/new-york-attorney-general-orders-crypto-lending-platforms-to-halt-operations-in-state/" target="_blank" rel="noreferrer noopener">New York State Attorney General</a> has put serious effort into probing digital asset companies on their lending and deposit earnings products. Although these are currently directed nominally at crypto lending companies, many legal observers think staking is the next step.  But until then, Staked doesn’t see any sign that the industry is going to slow down. After all, of all the ether wallets out there, the <a href="https://etherscan.io/address/0x00000000219ab540356cbb839cbe05303d7705fa" target="_blank" rel="noreferrer noopener">Eth 2.0 staking contract wallet</a> is the second-largest holding, with over 8,000 ether or $32 billion. That’s a significant part of the ecosystem to take on, which also means that regulators might feel the need to tread lightly to prevent a domino effect from occurring.