Table of Contents
- Ready To Defend In Court
- The SEC’s View
- Staking Products Are Not Securities: Coinbase
- SEC Roundly Criticized
Coinbase executives are pushing back against the classification of staking as a security by the United States Securities and Exchange Commission (SEC) and are ready to defend it in court.
Executives have claimed that staking cannot be classified as a security under the US Securities Act or the Howey Test.
Ready To Defend In Court
Executives at cryptocurrency exchange Coinbase are ready to defend their crypto staking services, stating that they cannot be classified as a security. They have also claimed that they are ready to defend the matter in the courts of the United States, marking a head-on collision with the SEC. Coinbase CEO Brian Armstrong took to Twitter to outline the company’s stand, stating that Coinbase would “defend this in court if needed.”
“Coinbase’s staking services are not securities. We will happily defend this in court if needed.”
The statement by Coinbase comes after cryptocurrency exchange Kraken, and the Securities and Exchange Commission reached an agreement on the 10th of February, 2023. According to the agreement, Kraken would stop offering staking services and programs to users based in the United States of America.
The SEC’s View
According to the Securities and Exchange Commission, Kraken did not register the offer and sale of their crypto asset staking-as-a-service program, which the SEC viewed as securities. Apart from discontinuing its staking services to its US-based clients, Kraken also agreed to pay a fine of $30 million towards disgorgement, prejudgement interest, and civil penalties. However, Paul Grewal, Chief Legal Officer at Coinbase, differed with this view in a blog post, saying that staking cannot be classified as a security under the US Securities Act or under the Howey Test. He further added,
“Trying to superimpose securities law onto a process like staking doesn’t help consumers at all and instead imposes unnecessarily aggressive mandates that will prevent US consumers from accessing basic crypto services and push users to offshore, unregulated platforms.”
Staking Products Are Not Securities: Coinbase
Coinbase, through Grewal, has argued that staking does not meet the four criteria set by the Howey Test: the investment of money, common enterprise, and reasonable expectation of profits. Grewal stated,
“The Howey test comes from a 1946 Supreme Court case – and there is a separate discussion to be had about whether that test makes sense for modern assets like crypto.”
Grewal further wrote,
“The purpose of securities law is to correct for imbalances in information. But there is no imbalance of information in staking, as all participants are connected on the blockchain and are able to validate transactions through a community of users with equal access to the same information.”
Grewal underlined how blockchain technology could drive economic growth in the United States, and staking could play a crucial role in that.
“Blockchain technology can spur significant economic growth in the US, and staking is a safe and critical aspect of that technology. [...] But regulation by enforcement that does nothing to help consumers and drives innovation offshore is not the answer. Getting it right on staking matters.”
SEC Roundly Criticized
The SEC’s decision on staking has resulted in a stinging criticism of the agency from the larger crypto ecosystem. However, even the SEC’s own commissioner, Hester Peirce, penned a scathing rebuke of the agency and its decision to ban Kraken’s staking service. In her statement, Peirce argued that regulation by enforcement was not an efficient or fair way of regulating a nascent industry.
“Today, the SEC shut down Kraken’s staking program and counted it as a win for investors. I disagree and, therefore, dissent. Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.