Yesterday, the Securities and Exchange Commission (“SEC”) announced a settlement with centralized crypto exchange Kraken over its “staking-as-a-service program.” The service allowed users to earn rewards by indirectly participating in a process that helps to maintain and secure certain cryptocurrency networks. The SEC alleged that Kraken’s staking service constituted the illegal offer and sale of unregistered securities.

In essence, the SEC’s complaint contains two main allegations: one, that Kraken’s staking service involved the offer and sale of a type of security known as an investment contract, and two, that Kraken failed to register this security by filing a statement containing certain material information, as required under the Securities Act of 1933 and its implementing regulations.

While reasonable securities lawyers may disagree as to whether the specific facts and circumstances of the staking service at issue fit the definition of an investment contract (as elaborated in 76 years of case law), there’s something unreasonable about the SEC insisting that crypto platforms register their staking services without the agency first providing those platforms with a clear means of, well, registering their staking services. Enforcement actions such as these are blunt instruments that are good for tearing things down and bad for creating the conditions in which to build. They scare away from American shores businesses developing innovative services sought by consumers without providing any clear path toward compliance.

Love it or hate it, it’s hard to argue that the technology underlying staking is not on some level innovative. Broadly, “staking” refers to a way for crypto users to earn rewards (i.e., more crypto tokens) by committing their own tokens to a process for verifying transactions and recording them on a blockchain ledger. While details vary, in general, the overall process—known as a proof-of-stake (PoS) mechanism—helps to incentivize honest behavior on the part of the validators that maintain and secure a cryptocurrency’s network by rewarding those who accurately record transactions (those who stake the relevant funds are randomly chosen to confirm transactions and thereby earn rewards) and deter fraud or incompetence by penalizing those who don’t (the tokens they commit will be taken away, or “slashed”).

“Staking-as-a-service” generally refers to an option offered by crypto intermediaries, such as Kraken, that lets users participate in staking without having to handle every technical detail on their own. The structure and details of particular staking services, though, can vary widely, which is yet another reason why isolated enforcement actions provide limited guidance to market participants.

It’s worth noting that the SEC’s complaint against Kraken does distinguish, to some extent, staking through an intermediary service from staking generally (although SEC Chair Gary Gensler has expressed skepticism about the latter as well). But targeting staking-as-a-service still has broader consequences. Staking services allow users to participate in staking regardless of their technical proficiency or the size of their individual crypto holdings. Yesterday’s enforcement action threatens to cut those users off from a desired service in the name of protecting them.

As SEC Commissioner Hester Peirce, who dissented in the Kraken action, explains, “Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.” Calling the SEC’s solution one of a “paternalistic and lazy regulator,” Peirce criticizes the outcome that “shut[s] down entirely a program that has served people well.” This approach is so unconstructive because, as Commissioner Peirce points out, “In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline.”

The SEC’s approach to Kraken, and to crypto broadly, therefore invites comparisons to other mythological sea monsters. By shutting down a staking service for failure to register but offering neither a de jure nor de facto means for platforms to practically register or operate staking services, the SEC is ensnaring crypto projects between the Scylla and Charybdis of aggressive enforcement actions and passive aggressive administrative inaction. Crypto developers and users, including America’s entrepreneurs and consumers, deserve better.