SEC Promotes DeFi and Self-custody Staking
Two distinct methods of participating in blockchain networks and earning rewards are staking on centralized exchanges and staking in decentralized finance (DeFi). Although both involve holding and staking assets, they differ in their operation and benefits.
Staking on centralized exchanges is a method that allows users to earn rewards by holding specific cryptocurrencies within the exchange. However, the exchange acts as a centralized intermediary, which means users have to trust the exchange to securely hold their assets and distribute rewards accurately.
In contrast, DeFi staking occurs on decentralized networks like Ethereum, where users hold their assets directly and earn rewards through smart contracts. This eliminates the need for a centralized intermediary and gives users greater control and security over their assets. Furthermore, DeFi staking typically offers higher returns than centralized exchanges since rewards are generated through network consensus and governance processes.
Staking on centralized exchanges is a convenient way to earn rewards, but it means depending on a centralized entity. Centralized exchange options provide several advantages for staking, such as simplicity and user-friendliness. These options usually come with an easy-to-use interface, which simplifies the process of staking cryptocurrencies.
In comparison, self-custody alternatives may be more complex and require advanced knowledge of blockchain technology. Moreover, centralized exchanges tend to have more liquidity and trading volume than decentralized ones, making it simpler for centralized exchange users to buy and sell staked assets.
When considering whether or not cryptocurrency qualifies as a security, it's crucial to bear in mind what Gary Gensler stated in his public address following the Kraken staking enforcement action. He stated that "Not your keys, not your crypto," implying that he was referring to tokens or coins other than Bitcoin since it's not feasible to stake on Bitcoin.
Sources:
https://www.investing.com/news/cryptocurrency-news/sec-promotes-selfcustody-and-defi-staking-3038359
https://cointelegraph.com/innovation-circle/sec-promotes-self-custody-and-defi-staking
https://beamstart.com/news/sec-promotes-self-custody-and-16795769776053