According to CEO, Coinbase will “joyfully defend” staking in US courts.
According to Coinbase executives, staking does not qualify as a security under the Howey test or the US Securities Act.
Bitcoin exchange The leaders of Coinbase are defending their cryptocurrency staking services, insisting they cannot be categorised as securities, and threatening to take the case to US courts if necessary.
Brian Armstrong, the CEO of Coinbase, tweeted that the business would “fight this in court if necessary.” The action comes after the Securities and Exchange Commission and cryptocurrency exchange Kraken negotiated a deal on Feb. 10 to halt providing staking services or programmes to customers in the nation.
The SEC claimed that Kraken had neglected to “register the offer and sale of their crypto asset staking-as-a-service business,” which it has since deemed to be a kind of securities. Kraken also consented to pay $30 million in disgorgement, prejudgment interest, and civil penalties in addition to ceasing the service.
In response, Paul Grewal, the chief legal officer at Coinbase, wrote on his blog that “staking is not a security under the US Securities Act, nor under the Howey test.” Grewal also said
“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.”
Grewal contends that the four criteria of the Howey test—investment of money, common enterprise, a reasonable expectation of rewards, and other people’s efforts—are not met by staking. He stated, “There is a distinct conversation to be conducted about whether that criteria makes sense for current assets like crypto. The Howey test stems from a 1946 Supreme Court judgement.
“The goal of securities law is to balance out informational disparities. However, since everyone involved in staking is connected to the blockchain and can validate transactions through a community of users who have equal access to the same information, there is no information asymmetry. The executive also wrote:
“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.”
Critics criticised the SEC’s decision regarding crypto staking. Commissioner Hester Peirce publicly criticised her own organisation for shutting down Kraken’s staking service in a statement titled “Kraken Down.” Peirce claimed that governing an emerging business by enforcement “is not an efficient or fair manner of regulating” it.