On Sunday, rumors began circulating on social media that Lido, a decentralized staking service, received a notice from the U.S. Securities and Exchange Commission known as a Wells Letter. The rumors were started by David Hoffman, co-host of the crypto podcast, but he subsequently retracted his statement. The news caused panic on Twitter and at the ETHDenver conference.
Lido, which helps users stake tokens to earn interest and secure the Ethereum blockchain, declined to comment whether it had received the notice. Wells Notice is a notification that outlines the charges that the agency is contemplating against the recipient. The market appeared to react to the Wells rumors, with the price of Lido’s LDO token falling 10% in the past 24 hours.
Since the staking service offered by Lido is governed by a decentralized autonomous organization (DAO) structure, which means it is operated by a vast network of token holders rather than a central leadership system, it is unclear how the SEC could have formally served the notice to Lido. This is because no single person or entity is responsible for the operations of the Lido staking service.
On February 3, Paxos, a stablecoin issuer, confirmed receiving a Wells Notice. The SEC has stated that it is investigating Paxos for potentially operating a security without proper registration through its BUSD stablecoin.
Kraken, a cryptocurrency exchange platform, settled with the SEC last month and agreed to cease its staking service. It chilled the crypto staking landscape and raised regulatory questions for equivalent services, whether centrally controlled or DAO-operated.
According to Dune Analytics, Lido is currently the largest Ethereum staker, accounting for 31% of all staked ether. While Lido declined to comment on the rumors, it is clear that the crypto industry is facing increased regulatory scrutiny, which could impact the broader market.
