Coinbase Petitions SEC to Exclude Crypto Staking from Securities Law

The exchange is working proactively to ensure the SEC doesn’t shut its services down.

Coinbase CEO Brian Armstrong surrounded by crypto coins with SEC chairman Gary Gensler on background.

The recent crypto crackdown in the U.S. has been typified by the Securities and Exchange Commission’s hardline approach to policing several crypto firms. The SEC has taken aim at Paxos, Binance, Ripple, and Kraken’s staking services.

 The SEC’s decision to probe Kraken and demand it halts its staking services due to its infringement of securities laws has caused Coinbase to act proactively. The popular U.S. exchange has sent a petition to the SEC to explain why staking can’t be universally labeled as securities. But this is not the first time Coinbase has made its case.

Coinbase acted immediately after Kraken paid a $30 million fine on February 10 and shut down its staking. Coinbase CEO Brian Armstrong tweeted a blog outlining why its staking services are not securities. 

The crypto exchange has now doubled down on its assertion about staking by approaching the SEC directly. The 18-page petition discusses securities law treatment of services related to validating proof-of-stake protocols and places Coinbase’s staking service outside the SEC’s jurisdiction.

Coinbase states staking isn’t a monolith operation concept – some staking models may fall under the definition of investment contract offerings, but not all will. Coinbase specifies that its core staking services don’t meet the criteria of the Howey test.

Coinbase’s core staking services do not involve the investment of money – the opportunity cost of staking is not an investment. The petition claims that users are rather giving up temporary use of their assets, not money, the petition claims.

Additionally, stakers retain full control of their assets. They can unstake them, sell, hypothecate, vote, pledge, or dispose of them how they feel independent of the service provider.

Fighting to the End

The document highlights several reasons why the SEC’s approach to staking is wrong and how it should not fall under the regulator’s jurisdiction. It also lists historical precedents and legislation in defense of crypto staking. 

Unsurprisingly, Coinbase is looking to the law and previous precedents in its defense. There is no set legal framework in the U.S., and crypto regulation is being applied through the courts. 

According to Armstrong’s tweet, where Coinbase initially laid out its claim to not violate securities law, he is happy to take the matter to the courts. 

On the Flipside

  • Armstrong is displeased with the general regulatory approach in the U.S., which has given the SEC such broad jurisdiction. He has asked for a “clear rulebook” so companies can operate compliantly. 

Why You Should Care

The Securities Act of 1933 provides a broad jurisdiction for the SEC to police different assets as securities– it is not just reliant on the Howey Test. That being said, the boundaries of the SEC’s reach need to be defined in the crypto space through ongoing discussion and precedent-setting, such as Coinbase is trying to do. 

Read more about Coinbase’s case against the SEC regarding Staking:
Coinbase Staking Is Self-Custodial, Claims CEO: But What About USDC ‘Staking’?

Read more about Hong Kong and its aspirations to be a crypto hub:
Hong Kong’s Crypto Hub Dream Realized as 80 Firms Plan Entry into City.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Darryn Pollock

Darryn Pollock is a South African-born, UK-based journalist and content writer for DailyCoin with a focus on regulation and legislation revolving around the cryptocurrency space. He has covered the evolving crypto regulatory space, and examined how the US has approached law-making to offer protection in the growth of innovation. Darryn values traditional journalistic principles of truth, accuracy, independence, fairness, and impartiality, and has a Bachelor of Arts degree in Journalism and Law from Rhodes University in South Africa.