On November 9, 2023, the Proof of Stake Alliance (POSA), a non-profit organisation representing firms in the crypto staking industry, released an updated version of its “staking principles.” The new principles aim to promote consumer protection and responsible innovation within the staking space.In their blog post announcement, they said, “POSA urges service providers and key ecosystem participants to adopt the following industry-driven principles going forward, as staking continues to mature as a technical and commercialised service.” The updates include three new staking principles. According to the first principle, staking providers must communicate clearly about the services and disclose all relevant information to stakers. They must ensure users have all the necessary information to make informed decisions.The second principle states that the stakers must have complete control over their staked assets. They should be able to decide how much of their assets they want to stake. The last principle requires staking providers to have clearly defined roles and responsibilities and not to manage or control liquidity for their users.These newly defined principles were signed off and supported by 18 key industry players, including Ava Labs, Bitcoin Suisse, Blockdaemon, Coinbase, Polychain, Paradigm, Rocketpool, and Swell.The POSA released its first staking principles in 2020 upon their establishment. The earlier version of these principles outlined that staking providers must not offer investment advice, promise a definite amount of staking rewards, or suggest that they have authority over the network protocols they support.
However, despite these principles, the crypto staking industry was still in its infancy and fell susceptible to regulatory scrutiny. In February 2023, it came under regulators’ watchful eyes when the US Securities and Exchange Commission (SEC) shut down crypto exchange Kraken’s staking services.The SEC alleged that Kraken had failed to register its staking-as-a-service program and had failed to disclose the risks of staking to its users. As a result, it penalised Kraken with a $30 million fine for violating securities laws.Thus, while introducing the new staking principles, POSA noted, “Given the prevalence of proof of stake, and the current regulatory climate in the United States, the relevance of these staking industry principles has been amplified.”The new POSA staking principles have been framed to align with the SEC’s investor protection goals and allow staking providers to build trust and mitigate regulatory risks.Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash