KYC, SEC, Contingent Staking, Twitter Drama and YOU. Spank-fully explained! ;)

Recently an issue of SEC going after staking platforms such as Kraken, Coinbase, Binance, etc… came up. Kraken settled for $30 million and removed staking services and here is a quick explanation from SEC on what and why:

Please note that Gary Gensler specifically mentions targeting platforms that TAKE possession of tokens thus exposing investors to risks of that platform itself. Nothing to do with Cardano staking since you control your own coins when staking to a POOL (from your wallet, not from the exchange).

This topic expanded to potential of regulatory actions against ALL other staking and conversations (on social media) started about Cardano Stake Pools. Inevitably (I guess :man_shrugging:) this became a conversation about SPO and KYC and USA regulations. At which point Charles made a video where a term “Contingent Staking” came up. :point_down:

In this video, as you can see for yourself, Charles acknowledges that what just happened to Kraken is not applicable to Cardano and discusses potential directions that USA SPOs may have to take if regulation turns against them. Specifically how contingent staking can be used to stay compliant for USA or outside of USA SPOs.

This line of events eventual spread to Twitter (and other social media) and became a conversation about adding/ not adding contingent staking to L1 of Cardano, censorship, permission-less staking and so on.

NOW the topic touched L1 of Cardano, so things got emotional (as they always do when someone even looks at Cardano SL/CL :blue_heart:). So, like a clockwork, the FUD and grandstanding with a good dose of personal attacks emerged. Full round of “Why are we even here” and “I can’t believe you all want…” as well as “I’m leaving / have solution/ had enough/ etc…” posts. While the other 95%+ of Cardano users just turn on their phones/computers and just see the middle of self inflicted shitstorm in progress.

So if you are asking yourself at this point “What exactly did SEC say that affects Cardano?” The answer is NOTHING.
SEC in their recent actions didn’t do or say anything that would impact on Cardano itself.

What did happen is that an open discussion has degenerated into a myopic belief that Cardano either needs or should never have L1 contingent staking. And, as usual, proponents for each side will engage in battle of wits over social media while Cardano community members will mostly feel like they have to choose and support one side or the other.

This just shows how many different Cardano leaders/voices on both sides of the argument can all end up in a same echo chamber with blinkers on.

Do you all really think that Cardano devs can just whip up a KYC protocol and SEC and other agencies will be like: “Oh, I guess Cardano is regulating itself, COOL :+1:, lets leave them alone.” :woman_facepalming: :man_facepalming: :person_facepalming:

Cardano can build the best KYC protocol ever and SEC can just not accept it as evidence of compliance. In a matter of fact, SEC can deem such protocol illegal because they ask for KYC with out being government compliant entities.

Imagine if you opened an unauthorized illegal resort with hotels, restaurants, casinos, entertainment and stores. BUT you made sure to have a KYC protocol to ensure no money laundering or ‘other’ illegal money transactions were being allowed through. Do you really think government agencies will be asking to see your KYC reports and treat you like any other business?

NO they wont. They’ll be like: “Hey! You have no permits for any of this. Shut it down!”

The fact that all these people within Cardano even think that governments will accept code-as-law instead of just ignoring it and pushing their own agendas is naive at best. We are NOT an equal partner at negotiating with any government agencies about regulation. Governments control all the power in such negotiations. And this doesn’t even account for other political agendas that may work against us in such matters.

As for “Contingent Staking” boogeymen… Did you know that ALL Cardano staking is currently “Contingent Staking”? Contingent means that A happens ONLY IF B happens as well. If you want to be able to delegate to any pool you MUST register your wallet and deposit 2 ADA as well as cover all transaction fees for this. That’s right! Your ability to delegate is CONTINGENT on you registering and having enough ADA to do it.

“But Neo you are taking it too literal, what they mean was changing the whole protocol to permission-ed…” I can already hear it now :rofl: :rofl: :rofl:.

The point here is that the mental block of thinking that you have to ruin L1 to be compliant is myopic. All you would need to do is have a wallet that would add a government approved DID (if there is ever such a thing) in a contract and register as “approved” citizen for delegation. Then if there are any SPOs that want to give rewards to only “approved” citizens they run it as private pool at 100% fee and make a contract for distribution of rewards to only listed-as-approved wallets.

All this is possible right NOW with ZERO changes to protocol. There are pools that run on 100% fees and distribute rewards themselves. Also, there are projects that search delegated wallets and only send drops to wallets that meets some criteria.

Coding for SPOs approval of delegation is a metal block. It is most likely never going to be accept by governments or Cardano community.

Now for the most important part.

The only way Cardano becomes accepted and adapted by people and governments through out the world is by being stable and incorruptible trough time. People, leaders, groups, forums, influencers and emotions are all corruptible and can make mistakes. This is why it’s important to lay out founding principles and follow those priciples.

So if you want to help deal with this and other incoming shitstorms (self imposed or otherwise), then engage in discussion and creation of Cardano constitution. Cardano constitution will help lay down the guidelines that will clearly show the way out of these echo chambers. Something like this wouldn’t even be an argument if we had constitution that addressed L1 delegation permissibly, and so on.

It is only through strong foundations that we can persevere, not through social media bickering about any new term that one of our community leaders, influencers, members makes trendy.

We are Cardano.

If we persevere, then Cardano will persevere.

Despite of any governments, laws and press. Don’t let them scare you. Just fools yelling at a computer code thinking they can stop a revolution.

:cardano:Always remember that we are here because we know how good everyone’s tomorrows can be. :cardano:


I feel like I want to give something more than a heart for that post. Thank you for writing it.


Super strong thread @Neo_Spank !

Thanks for that.


Great text! Keep up the good work :raised_hands:


Also being discussed here; a thread submitted concurrently:

… where I think there is agreement that the recent “shitstorm” is really a “tempest in a teapot” & only worrisome for those who think these arrogant regulators are somehow able to determine the future that develops.


Thanks @Neo_Spank for explaining this.
This follow up video by Charles also helped cleared up the confusion for me.


Interesting video. A few points though:-

  • in the example of trashing a restaurant the customer is causing damage to the business property and causing disruption to other customers. This is not possible through the SPO setup. The protocol ensures I can’t behave badly so this control doesn’t result in any reduction in risk or negative impact.
  • there’s a benefit to not building in these as possibilities at a protocol level. Andreas antonopolous talked a lot about this, once it becomes possible, it becomes legally mandatory and regulators attack those not willing to embed full kyc.
  • when delegating I am not going into a business arrangement. I am not legally required to do anything in return. I may even not be a person. This just introduces unnecessary friction.
  • I don’t think it’s possible for iohk to develop a privacy coin that gets any traction whilst Charles calls Snowden a traitor and enables more KYC at every level of the blockchain.
  • the example of a Ukrainian SPO not wanting to allow Russians to delegate is ridiculous, the point is that every address is the same and should be treated the same. Can I not allow people’s of certain races to delegate to me if I don’t like them? One of the great things about bitcoin is the protocol doesn’t care, everyone is treated equally hero or villain. Regulation around bitcoin has needed to adapt to this because discrimination isn’t possible at the protocol level.
  • this is a very slippery slope and ends up with more and more of these ‘optional’ controls which just end up being the norm and people stop using the Blockchain.
  • Charles says again and again that cardano is decentralised but characterises anyone who disagrees with him as being dishonest and comes after them with quite an angry tone. It would be very bullish for cardano if this did not pass and show that this is not a top down ecosystem with a dictator. Not once in the video did Charles recognise the validity to any criticisms. It is Charles who is not giving an honest representation if anything, any debate needs to acknowledge advantages and disadvantages.

We love you Charlie but you really miss the mark sometimes and should respect the very valid criticisms of this and encourage a reasonable debate.


Greetings, @logos and welcome to the community,

If someone steals some ADA via a ransom attack and then stakes it, the authorities might come after the stake pool operator.

Something similar happened to an acquaintance of mine. He wrote a day trading bot which had unwittingly received funds that had touched an oligarchs account. The US government froze the assets for a short while until my acquaintance could be cleared. So it’s not too far of a jump for me to imagine the same thing could happen to an honest stake pool operator who has no say in the type of people that delegate to his pool.

I thought so too, but @HeptaSean argued the the other side of that in a different thread on the same subject.

While most of us find racism repugnant, I have learned that there are legitimate reasons why stake pool operators should be able to refuse delegators - even if just for personal reasons. Now I am starting to think that it shouldn’t matter if you don’t want to do business with someone for any reason as long as everyone has access to a variety of stake pools or can start one themselves. Others will disagree on principal but why would anyone fight over unlimited resources. Seems to me, the only reason to fight when resources are unlimited would be ideology. Personally, I am starting to find that the world is big enough for everybody to have their own ideology as long as we don’t try to force ours on another. Especially as resources become unlimited, I prefer to get what I need somewhere else if I am not wanted here.


Now I feel secure and God I’m happy to be with Cardano. :muscle: The best blockchain with the best community


Thanks for the welcome!

I don’t buy the argument about authorities coming to SPOs for hacked funds at all. The whole point of the delegation process is that SPOs do not take custody of any funds at any point in time and do not have any ability to move them. As they do not have any control over the funds, authorities coming to them would be futile. Also how would country based kyc protect against this since the SPO could just say to the authorities ‘well the person didn’t live in the US’, which would be no help at all. Also I don’t think we should be making protocol design decisions based on an unlikely hypothetical single incident with an uninformed police officer trying to retrieve funds then still being unable to do this. What is next? The ability for SPOs to seize funds in case they get a knock at the door? This is going in a worse direction than the traditional financial system.

I also don’t buy the ‘well maybe racism is okay’ argument. If you’re offering a business to the public it’s illegal in the majority of western countries to not serve someone based on your prejudices. A few years ago in the UK a couple refused for a gay couple to stay in their bed and breakfast hotel, this was deemed to be illegal, when they decided to turn their house into a hotel they voluntarily decided to engage with the public and offer a service and lost the right to not serve people due to sexuality etc. It’s the same with SPOs, if you find the idea of someone from a country you don’t like interfacing with your stake pool then don’t run one. Better yet don’t go on the internet, you also better not be using any legal video streaming platforms that share your bandwidth with other peers as you might be sending packets to someone you don’t like. I think the majority of these arguments are just ridiculous. At the end of the day it’s a random address on a block explorer, it could belong to a gay ukrainian or a smart fridge in Texas, who cares? None of these controls reduce any risk in any way shape or form so it’s just enabling over regulation for the sake of over regulation.

All of these views are antithetical to Blockchain, or even the open internet and a modern global society. It pains me to see the length people go to to try to justify some of Charles’ crazy ideas. The question to ask is whether they would support it if Charles did not, and if that’s not the case, then they’re not applying any independent thought or critical thinking and are harming the Blockchain by socially delegating all decisions to a single person.


Greetings @logos,
Thanks for your well thought out response.

Before this thread was started, I started a thread of my own on this very subject

As you can see I politely called out Charles for leading the Cardano community toward a permissioned blockchain which enables censorship.

As you can see from my post (linked above), I felt exactly the way you feel now and I did not support Charles’ view.
But as I read the comments from other community members, and considered the facts presented which were unknown to me before, I changed my mind.
I would argue now that giving myself permission to change my mind when presented with new information is the single most important part of critical thinking.

I felt the same way.
Then @DVNC_L explained to me in the other thread the following:

Charles ‘introduced’ the idea of contingent staking in 2021 as a way SPO’s could prevent an attack where whales oversaturate pools forcing smaller stakers to leave, then the whale leaves, leaving the pool with a much smaller delegation.

Charles also made a follow up video about contingent staking that covers other use cases that have nothing to do with regulators.

He does seem a bit annoyed but I think that is only because he is aware of information about the subject that we are not and yet imagines that we already know what he knows. Probably because he spends most of his time surrounded by people with access to the same information he has. In any case he is kind of busy and yet takes the time to share his thoughts so I return the favor by giving him the time to listen. I am glad I did because there was new information in that video for me which matched what community members where telling me in this forum.

The big takeaway from all of this for me is that even if an SPO denies service to a delegator, the delegator still has nearly unlimited access to stake pools and or has the option to start his/her/their own. So what’s the difference? If we are talking about a limited resource like hospital service then yes, I agree, no one should be denied service. But if the resource is unlimited I am thinking “Fine, I will give my business to someone that welcomes me”. Unlimited resources are an new idea for me. That’s what I wasn’t seeing when I started the thread linked above. Unlimited resources changes everything.

I am a white man and my wife is a black woman.
Neither of us think much about racism.
We just stay away from people that don’t make us feel welcome.
We are happy most of the time because we are not trying to change other people’s minds.
I started the parallel thread linked above because I wanted to know if I should change my mind.

I really appreciate this dialog with you and the opportunity it gives me to explore this subject.




This is the kind of mental block that Twitter arguments create. Everyone just locks on to one idea and it’s battle to the end.

Let us reframe this by adding an alternate view. We’ll start with a list of premises that we can accept or reject.

1. SPO can be run as a business (All sides seem fine with that)

However, unlike Charles I see delegation as being a VOTER, not a CUSTOMER. We don’t send our ₳ to SPOs, We don’t even delegate our ₳, we delegate our wallets. Our voting power of our delegated wallet is determined by amount of ₳ we have at snap-shot time. Our votes help ELECT SPOs for block production. Just like elected officials SPOs keep our system safe and running. They get compensated for doing that job from the system that we all pay into.

So, if we extend that analogy, then what would it look like if during an election time someone starts blocking votes, or prevents a whole region from voting for one of the candidates? That make no sense at all.

Counter argument was that this view considers SPOs as a “public good”. This also makes no sense if we view delegating as voting. Voting is and must be 100% public. Obviously! SPOs that do not run private pools CHOOSE to be a part of public voting process, just like anyone running for the public office. Also, just like any election campaign there will be costs and materials used, time invested and advertisement. That doesn’t make elections a business franchise with elected officials as owners and voters as customers. This is where SPO as business analogy fails.

This is also where most of Cardano community feels that it doesn’t describe their vision of Cardano. In real life there is no examples where elected officials can make a business out of being elected (almost none). So this is a new model and requires our community to think about it and define it. Getting stuck on justifying existing system models is not why we are here.

So, next premise (after a few paragraphs :wink:):

2. Delegation is act of voting for public SPOs

And of course, just like any voting:

3. Every delegator (voter) must have identical access rights.

4. Every public SPO must provide equal access to delegation.

This further assumes that

5. Layer 1 can’t ever be hard forked to remove points 1,2,3 and 4

If 1,2,3 and 4 are to stay TRUE, then 5 is a must.

At this point it looks like we may not be able to reconcile delegations with SPOs as a business and regulatory pressure. If you feel like this, then you probably fell under that Contingent-Staking-KYC-Twitter mental block. Lets drive right trough that block :smiley:

So, if we reframe these issues into our terms.

Only thing that (maybe) stops us from delegating as voting and treating SPOs as business at the same time are… rewards. Yep, that’s it. It is only because this may be seen as financial gain that SPOs may be in regulatory trouble. For example, no one is going to shut down Americas Got Talent if someone from Iran or North Korea phones in to vote for their favorite performer.

So, lets give SPOs full control of rewards and who can get them. But wait, you may say, they can already do that trough setting a margin fee to 100% and air drop to only selected wallets. TRUE!

So no issue there.

What about ISPO issue? Well, there would have to be some kind of a contract that can guaranty a pay out after some time or some conditions are met. Sound like a smart contract to me.

So no issues there.

But KYC? What about governments that want their KYC? Well, for that you would need such governments to approve (or issue) DIDs. So until governments start issuing or recognizing DIDs (or other forms of digital identity) you can’t implement a digital KYC method. So any SPOs that want to engage in KYC required ventures need to follow already established KYC rules or wait until their jurisdiction approve or create one. There is nothing you can code on any layer of Cardano that just become a law via hard fork.

So no issues there on Cardano side.

But what about SPOs having freedom to be a business and choose their customers?
This looks like if 1, then can’t have 2,3 and 4 ?

Well, that’s where the new system comes into place. You can’t prevent who votes for you, but you can set a system so rewards in ₳ or what ever else SPOs provide only go to wallets SPOs select. That is the extent of the compromise that can be made. Any side chain or layer 2 solution that lets SPOs fine tune rewards distribution is more then welcome. But they get no say on who is allowed to vote. So:

If 1, then more control needed for SPOs
1 if and only if 2
2 is not affected by rewards distribution control
There for 1 can co-exist with 2 if higher control of reward distribution is added for SPOs

This solution may hurt some, but once layer 2 and sidechains develop they will see that ₳ rewards will be irrelevant to their business.

What about the attack vector of whales over saturating pools?

Well, that is a protocol issue and can be resolved through code. Adding partial staking to wallets that will only delegate up to maximum left to saturation point and no more would be a start. And/or immediately moving fees to 100% so SPOs can manually resend to non attacking wallets and so on.

Issue is solvable through code without restricting delegation.

The point is not to get stuck on just one idea that makes community feel like we are abandoning the revolution. Nor is this regulatory fear mongering a good reason to just mess the base code up quickly.

We are not here to please powers that be by adhering to their archaic views of money and laws.
We are not here to try and fit into bureaucratic loopholes nor try to hide in unregulated domains.
We are not here to justify or condemn parts or whole systems.

We are here to build a new system. :cardano: Cardano :cardano:.

To do this we need to set our basic principles as a guide line for our path. We need to show everyone, especially each other that we are on the same path. Solutions to problems such as contingent staking or KYC can be automatically answered and guided by direction we set.

We need constitution

Get your favorite Cardano leader, influencer, project, developer or degen to start talking about Cardano constitution. Let us all focus on building Cardano up instead of tearing each other down. Cardano needs more then just a code and a hard fork. Cardano needs its citizens to acknowledge a way to be governed.


I think that is the crux of the issue people got hung up on. They took the reasoning for why it could be argued that Ethereum staking could get regulated with all its lock-ups and slashing risks and then extended this to Cardano by saying: Well maybe … if … the regulators might come after Cardano too and demand KYC for staking, so we can implement … “contingent staking”.

But what evidence do we have that regulators will come after Cardano staking? As @Neo_Spank so eloquently pointed out, Cardano staking is really just voting, so I don’t see why we need to do anything.

Cardano staking will be the last one regulators would come after. How would they even justify a need for KYC to stake on Cardano, to a fair minded court system? Sure regulators could just lump Cardano in with Ethereum to begin with because they are clueless about the details.

But thinking a few step further along it seems a bit ridiculous for a regulator to argue that these people on Cardano, pointing their keys around, are some sort of a threat. If they continue with that line of argument then they are admitting that what they really find threatening is people enjoying personal liberty and freedom about what they place value in.


It’s all getting clearer to me now , wallet’s ok for staking exchanges not so ok for me, that is.

1 Like

It is worth listening to Charles’ recent video about the contingent staking proposal:

I think regulators can choose to come after Cardano staking, and whether or not we provide tools to allow contingent staking is irrelevant. Cardano staking is literally making a free choice to point a key. There is no contract with the stake pool and there is no transfer of funds or taking of custody.

If regulators choose to outlaw Cardano staking then I think we have much bigger problems because at that point they will have chosen to outlaw freedom of choice, freedom of association, and freedom to value things differently. I would rather die on that hill because otherwise we may as well already be connected up to the matrix.

Just to nitpick, isn’t it a fallacy that the existence of something (in place) implies that it is okay?

I for one would venture to say that the existence of such a feature (albeit seemingly no other easy alternative) is a flaw that can lead to censorship. One can imagine a coalition of governments compelling all SPOs to implement 100% margin fee and rewarding only compliant addresses.

I can’t. Why would they do that? And how would they justify their legal arguments? Assuming you live in a country which has a legal system rather than a dictator changing the rules as he sees fit.

Cardano has trustless liquid staking where there is no custodial relationship and no contract with the stake pool. On Cardano, staking is simply voting with your key by pointing it at the stake pool operator you like.

If your government seeks to ban that then they are essentially banning freedom to have your own thoughts about how you value things. And if your government wants to do that then it will make no difference if the tools for contingent staking exist or not.

Also, remember that it is the collective holders of Ada that get to decide about which stake pools make blocks by pointing their stake keys around. Is your government really going to be able to somehow justify forcing people to point their stake keys at particular pools that they run, or approve?

Thanks for responding!

To tackle these one at a time:

Why? For control reasons, say for example if the SEC or a combination of securities regulators want to corral all crypto under it’s/their purview. How to justify? Using the same arguments they have been using so far - protecting the common person, enforcement against bad actors (AML), etc.

Id disagree here, not only are there rewards involved, there is a lot more underneath the hood that voting implies. It’s a means of projecting soft power and if it can be harnessed then that is definitely an incentive to try and control it.

We’re on the same boat on this. Which is why I didn’t mention contingent staking because we’d probably need to address this first.

To comply with regulations? Its not a stretch to me.

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I agree that voting is a means of projecting power.

So are you implying that the US government is going to take away the right to vote? Because if that is the case then its people no longer have a democratically elected government but instead a dictator.

In your previous post, you said:

I took that as implying that if Cardano implemented a feature, such as contingent staking, that the mere existence of this feature would then allow governments to force people to use it.

If you believe your government will force you to do something, where otherwise you would have a free choice, then if a necessary feature wasn’t yet implemented, the same government would just force you to implement the feature first, and then force you to use it. Same endpoint achieved. It makes no difference.

What regulations? Please someone point me to the US regulations that say your are not allowed freedom to choose how you value something.

Let’s not lose sight of the fact that Cardano’s staking model is very different to Ethereum’s. There are US regulations about entities that take custody of other’s assets and place them at risk. I can definitely see that Ethereum’s staking model has problems in this regard. But Cardano’s staking design does not involve transfer of custody nor acceptance of risk to your staked Ada.

To argue the other side’s case - those that believe US regulators will seek to ban Cardano staking:

One could argue that there is risk to your future potential staking rewards, since if the pool you vote for under-performs, you will get less rewards paid automatically by the protocol. However, that is a much more difficult argument since there is still no transfer of control of your Ada and no contract with the stake pool (verbal or otherwise). The stake pool doesn’t even do any additional actions based on whether you choose to vote for them with your key or not. The pool doesn’t even know if you voted for them.

It is a pretty difficult argument and I think it crosses the line on arguing to ban freedom of choice.

Then there is the argument about risks to the traditional financial system. Again, I think that is hard to argue because if a huge number of people choose to believe in the value of some token more highly than the US dollar, are they wrong for thinking this? Are governments really going to seek to ban such thinking? Are governments going to ban exchanging US$ for Ada? If so then why wouldn’t they ban exchanging US$ for paintings?

Instead, governments will seek to regulate the on-ramps and off-ramps to the fiat system. Then they will continue to require taxes be paid in fiat so everyone remains anchored to the fiat system that they control and manipulate.