Provincial securities regulators paused approvals of applications from crypto-trading platforms wanting to offer staking after the collapse of Bahamas-based platform FTX, The Logic has learned.

Crypto staking is a process that lets those who hold digital assets lock them up for a period of time, contributing to the operation and security of a blockchain protocol—a part of the technology that underpins cryptocurrencies like Ethereum—in exchange for rewards. Canadian regulators were first in the world to allow crypto platforms to offer staking to their customers, approving Wealthsimple and Bitbuy in the fall—until November’s collapse of FTX brought the entire industry under renewed scrutiny by regulators around the world.

Three sources with direct knowledge of the matter told The Logic this week that the provincial securities regulators, which oversee crypto platforms in Canada, have told them they were not processing staking applications. The Logic has agreed not to name the sources, who were concerned about damaging their relationships with the regulators. 

In an emailed statement, Ilana Kelemen, a spokesperson for the Canadian Securities Administrators, the umbrella organization for the provincial securities regulators, said CSA members “are currently processing and considering applications from platforms, including applications related to staking.” In an interview, she declined to comment on whether a pause was in effect in the past.

Some companies are frustrated that they can’t take advantage of a new revenue stream during a challenging time for the crypto market, the sources said, one that has proven popular among customers of Wealthsimple and Bitbuy, whose approvals had already been processed. Additionally, sources say competitors of NDAX, a Calgary-based crypto-trading platform that has not yet completed the registration process, are frustrated that it has been offering staking since February 2022 without the official green light from regulators.

“We cannot comment other than to say that NDAX has been working collaboratively with the regulators for some time on, among other things, our staking business,” said Tanim Rasul, its COO, in an emailed statement. Theresa Schroder, a spokesperson for the Alberta Securities Commission, said she was unable to comment on NDAX.

Being shut out of a new revenue opportunity is serious for Canada’s crypto platforms, which have struggled with a bear market for digital assets and reduced trading activity since the collapse of FTX. The shuttering of the high-profile platform, whose former chief executive Sam Bankman-Fried has since been charged with fraud in the U.S., sparked contagion in the crypto sector and has rattled confidence in the controversial industry among investors, regulators and the public.

A price recovery in the crypto-asset market since the new year has provided some relief, but times remain tough. Highly anticipated consolidation in the sector has yet to materialize.

Brian Mosoff, chief executive of Ether Capital, said the Canadian regulators’ pause on staking approvals is likely related to hesitation over new crypto approvals following FTX’s implosion, as well as their priorities shifting to a more forceful crackdown on unregistered trading platforms, announced in late February.

“Regulators are just making sure that they get this right,” Mosoff said. “That may be very frustrating for a lot of the platforms, but that’s just the reality.”

For the two Canadian platforms that received the world’s first regulatory approvals last fall to offer staking, the product has been a success.

At Wealthsimple, one in four monthly active users are now staking their crypto, according to data supplied by the company. Bitbuy says it’s one in three, up from one in 10 in December.

Dean Skurka, president and interim CEO of Vancouver-based crypto company WonderFi, which owns the cryptocurrency-trading platforms Bitbuy and Coinberry, said staking will “represent significant growth opportunity.” He said he expects regulators will roll out approvals to competitors soon, which he welcomes.

Anyone offering staking to Canadians without regulatory approval has some explaining to do, Skurka said. “All we can hope for is a fair and balanced playing field, where the rules apply to everybody.”

Asked for comment on its competitors’ frustration with the stalled staking-approval process, Wealthsimple Crypto’s head of legal Evan Thomas said in an emailed statement, “It is important that dialogue [with regulators] continues across many use cases in this space.”

Stalled applications notwithstanding, the fact Canadian securities regulators have provided guidance to platforms on staking and approved two platforms to offer it puts the country on a very different path from the U.S. In February, San Francisco-based Kraken agreed to end its staking program, which the Securities and Exchange Commission called a securities offering, and pay US$30 million in penalties to settle the charges.

Brian Armstrong, CEO of the Delaware-incorporated crypto-trading giant Coinbase, has said he has heard rumours the SEC is planning a total ban on staking for retail customers. Last week, he said Coinbase is prepared to defend staking in court if necessary, saying the U.S. is falling behind thanks to its regulatory approach.

“As much as people in Canada complain about some of this stuff, the reality is there’s much harsher actions taking place by the securities regulators in different jurisdictions,” Mosoff told The Logic. “Look at what’s happening in the U.S. right now.”

Lori Stein, co-head of the law firm McCarthy Tétrault’s fintech group, said she’s hopeful Canada’s securities regulators will be able to prioritize staking again now that they’ve issued updated guidance for platforms going through the process of registering as restricted dealers.

“I’m optimistic the CSA [members] will consider the applications by other registered trading platforms to provide staking services in a manner consistent with those platforms that have already been approved,” she said.