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Standard Chartered’s Crypto Arm Ventures Into Staking, Stirring Regulatory Waters

Published September 20, 2023 9:13 AM
Teuta Franjkovic
Published September 20, 2023 9:13 AM

Key Takeaways

  • Zodia Custody, a division of Standard Chartered, is launching the “Zodia Custody Yield” service.
  • The service offers investors yield while leveraging blockchain benefits, developed in collaboration with OpenEden.
  • Institutional investors can tap into off-chain yield potential by locking up digital assets to support the blockchain.
  • In the US, legal uncertainty surrounds staking services as the SEC has pursued actions against crypto exchanges.

The new crypto division of the British multinational bank Standard Chartered, Zodia Custody, intends to give its clients the opportunity to earn income on their holdings.

The “Zodia Custody Yield” service, which tokenizes real-world assets like treasury bills and allows investors to receive yield while utilizing the advantages of blockchain, was developed by the cryptocurrency custodian in collaboration  with OpenEden.

Using the crypto yield offering, Standard Chartered institutional investors can “access off-chain yield potential for their on-chain assets without compromising the bank-grade security of Zodia Custody’s platform,” according to a official statement .

This Standard Chartered service includes staking, in which crypto owners lock up their digital assets to safeguard the blockchain in exchange for recurring cryptocurrency payouts.

Legal Uncertainty Casts Shadow Over US Enterprises Amid SEC Scrutiny

Staking offers crypto businesses a lucrative earning opportunity, but it also puts American-based enterprises in legal limbo.

The Securities and Exchange Commission (SEC) has previously filed lawsuits against businesses like Kraken and Coinbase for marketing comparable products to retail users without making the necessary risk disclosures.

Bitstamp, one of the first digital asset exchanges, was the last in line to have to stop staking Bitcoin. In response to the SEC’s crackdown on the product, it would stop providing staking services in the US as of September 25.

The SEC considers some of these products to be unregistered securities since staking entails receiving incentives in exchange for pledging tokens to support the operation of a blockchain.

In a lawsuit filed in June, the regulator charged Coinbase Global Inc. with violating its policies by providing staking services.

Rival Kraken previously stopped offering US customers its products after announcing that it would settle SEC complaints for $30 million.

The largest US cryptocurrency platform, Coinbase, has declared that the SEC’s complaint is without merit. State regulators, from California to New Jersey, have also instructed the company to cease its staking offering.

Why Do Regulators Object to Staking?

The SEC contends that many staking service providers inadequately inform customers about their cryptocurrency usage and should register their services with the organization. In the February 9, 2023, settlement agreement with the SEC, Kraken neither affirmed nor contested the SEC’s assertion regarding the need for registration.

Gary Gensler, the chair of the SEC, stated that the action should serve as a warning to other cryptocurrency exchanges that provide comparable services to American customers, and that those platforms should comply with securities laws.

Regulators have expressed concerns about cryptocurrency products that lure investors with promises of substantial returns. However, outside of the United States, no scrutiny started on staking.

According to Kraken, it will still provide staking to customers residing outside of the US.

It’s not immediately obvious whether other cryptocurrency exchanges that offer staking will register those services with the SEC, despite Gensler’s assertion that the SEC’s settlement with Kraken should serve as a warning to the rest of the market.

Because its own service is “fundamentally different” from Kraken’s, Coinbase claimed in a statement that Kraken’s settlement with the SEC had no bearing on its staking programme.

The Kraken settlement isn’t a law; instead, it should serve as a catalyst for Congress to pass legislation regulating cryptocurrencies. This perspective comes from the Blockchain Association, an industry trade group representing several prominent crypto companies in the United States.

Europe Taps into Rising Institutional Interest in Staking Services

But European businesses are also joining the trend: Boerse Stuttgart Group, a major German exchange, recently introduced  a staking service for institutional clients. The move comes in response to the growing interest among institutional investors in the staking sector.

Likewise, Standard Chartered noted  that their service responds to demand among institutions for “low-risk, liquid, and transparent” crypto asset solutions “with respect to how returns are generated for stablecoin holders.”

In the blockchain and DeFi ecosystems, stablecoins, which are blockchain-based tokens backed by fiat currencies like dollars, serve as a common method for transferring value and providing collateral for lending.

Jeremy Ng, co-founder of OpenEden, commented  that “there are stablecoins worth billions of dollars sitting on the sidelines when they could easily be generating yields for investors.” That’s a significant potential, and Zodia Custody and I want to offer it to institutions.

Ng stated that the company will achieve this “by offering tokenized financial products in a safe and transparent manner.”

CEO of Zodia Custody Julian Sawyer noted that “a lot in the world of traditional finance can move to digital assets.”

Just a few days ago, Zodia announced  the expansion of its cryptocurrency custody services to Singapore.

 

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