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- In its “Petition for Rulemaking” crypto exchange Coinbase says that SEC’s securities laws aren’t applicable to crypto staking services.
- Coinbase said that with crypto staking, users temporarily give up the alternative use of assets, not money to qualify for security.
Crypto staking has become the center point of crypto regulatory discussion with Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC) stressing the need to bring it under their regulation.
US-based crypto exchange Coinbase has recently come out communicating proactively on this matter. In its recent development, Coinbase submitted a petition to the SEC explaining why it’s not right to label crypto staking universally as securities.
On Monday, March 20, Coinbase published the “Petition for Rulemaking” in its 18-page document while focusing on how the securities laws treat services related to validating proof-of-stake protocols. This petition from Coinbase comes in response to the SEC’s crackdown on Kraken’s staking program last month in February. The US SEC had charged crypto exchange Kraken for “failing to register the offer and sale of their crypto-asset staking-as-a-service program,” which it qualified as securities.
Coinbase Puts A Strong Defense Against the SEC
In its operation, crypto exchange Coinbase has argued that staking is not a monolith operation concept. Although some of the staking models fall under the definition of investment contract offerings, others do not.
Coinbase particularly emphasizes that the core staking services don’t meet the criteria of the Howey Test. The crypto exchange argues that core staking services don’t involve the investment of money since the opportunity cost of staking is not an investment. Coinbase said that with crypto staking, users temporarily give up the alternative use of assets, not money.
Also, there’s no common enterprise between service providers and stakers as well as among stakers. Here, users get complete authority over their assets along with the ability to unstake them, hypothecate, sell, vote, pledge, or else dispose of them irrespective of the service provider.
As per Coinbase, core staking services also don’t fall under the “expectation of profit” standard since the rewards that users receive are nothing but payments for the services rendered. In its petition, Coinbase has cited several historical pieces of evidence to guide the SEC on the existing regulatory work with crypto staking.
This includes the 1973 Committee on Special Investment Advisory Services, the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, from 2017, and the SEC’s Regulation Fair Disclosure from 2000.
Coinbase has told the SEC that treating crypto staking as securities could have significant economic consequences on the crypto ecosystem. It has thus asked the regulator to take a different approach to the matter.
However, soon after the Kraken episode with the SEC, Coinbase distanced itself saying that its staking program is fundamentally different from Kraken’s. Coinbase CEO Brian Armstrong also said that they would happily defend their staking services in court if required.
Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong 🛡️ (@brian_armstrong) February 12, 2023
