Skip to content

Coinbase Braces for a Court Battle With SEC Over Staking Services

CEO of Coinbase believe that the United States is headed down a "bad road" because of the drive to ban crypto staking.

Photo by Arisa Chattasa / Unsplash

Coinbase, a crypto currency exchange based in the United States, has already switched to a defensive posture about its current staking services. According (1) to Brian Armstrong, Coinbase's Chief Executive Officer, the crypto currency exchange is prepared to battle in court with the United States  SEC, should that become necessary in the future.

This declaration comes in the wake of a disagreement between Kraken, a competing exchange, and the SEC, which was finally resolved on February 10. Because it failed to register the offer and sale of its "crypto asset staking-as-a-service program," Kraken ultimately had to pay a fine of thirty million dollars as part of the settlement.

Additionally, because of this, the exchange will never be able to provide staking services within the nation.

While this is happening, many people, including the CEO of Coinbase, believe that the United States is headed down a "bad road" because of the drive to ban crypto staking. Armstrong wrote the following in his post on Twitter:

Staking services provided by Coinbase are not considered to be securities. If litigation is necessary, we will gladly represent you there.

The SEC Is More Focused on Regulation via Enforcement

Following the recent settlement that the SEC reached with Kraken, Paul Grewal, the chief legal officer of Coinbase, has also shared his thoughts on the matter. In a long blog post (2), Grewal clarified that staking does not qualify as a security under either the US Securities Act or the Howey test.  

To begin, he brought up the point that laws governing securities aim to rectify informational inequalities.

According to Grewal, there isn't any such thing as an unbalance of data in staking since it is a truth that there is no such thing. He claims that all participants on the blockchain are linked to one another and have access to the same quantity of information.

Additionally, he discussed the Howey test that was conducted. Grewal contends that staking only satisfies some of the requirements that must be met to be considered a security.

The four components include financial outlay, participation in a group endeavor, realistic anticipation of financial gain, and the assistance of others.

Grewal thinks that the continual display of power put on by the SEC provides no benefit to the general public. According to him, at best, they hinder innovation and drive consumers based in the United States to other platforms that are not regulated.

It is also important to note that Coinbase stock has dropped by more than 20% since Kraken was brought to the attention of the SEC for the first time. Even though Coinbase maintains that its staking services are "fundamentally different" than those offered by Kraken, this is the result.

Meanwhile, shares of Coinbase continued their red candles for the fourth day in a row. It cloaed at $57.09, down 4.26 % compared to the previous day. Still, it is up 89% since the start of 2023, riding on the strong momentum in all major crypto.

Coinbase Share chart. Source: TV (1.1)