Coinbase Submits Controversial Letter With SEC About Staking As Security

Key Points:

• Coinbase sent a comment letter to the SEC, requesting clarification that basic staking services are not securities.
• It claims in the petition that staking is not a one-size-fits-all business model.
• According to the exchange, basic staking services also fall short of the expectation of profit criterion.

Coinbase, one of the largest crypto exchanges in the ecosystem, has formed an 18-page document dubbed the ‘Petition for Rulemaking’ with the goal of convincing US authorities, particularly the Securities and Exchange Commission (SEC), that staking should not be regulated in the same way as securities.

The letter was prepared in reaction to the SEC’s crackdown on Kraken’s staking program in February. The exchange was accused by the SEC of failing to register the offer and sale of its crypto asset staking-as-a-service business, which it classified as securities.

Coinbase claims that the SEC statement on staking services contradicts the Kraken settlement and requests that the SEC clarify that core staking services are not securities.

Staking is a common service among crypto exchanges and issuers of digital assets. But, authorities, notably the SEC, have increasingly increased their vigilance.

According to the agency, at least some of the staked tokens resemble securities and should so be subject to the same restrictions. According to the SEC, selling staking without the necessary authorizations and licenses violates the US Securities Act.

By staking their cryptocurrency with a blockchain validator, cryptocurrency holders might get incentives as an incentive. These incentives are often in the form of freshly minted coins. Nevertheless, in return for these benefits, holders relinquish ownership of their original assets until they elect to unstake them.

Coinbase claims in the petition that staking is not a one-size-fits-all business model. Although some current models may qualify as investment contract offers, others plainly do not. The fundamental staking services, in particular, do not fulfill the Howey test standards.

According to Paul Grewal, Coinbase’s chief legal officer, the letter is intended to react to the company’s petition for rulemaking on digital asset securities regulation filed last year. According to the exchange, basic staking services are not securities but rather software services.

In the past, Coinbase accused the US Securities and Exchange Commission of dealing with fast-evolving technologies like analytics and computing services. The SEC sought regulation rather than concentrating on insider trading and investor protection.

Binance also disagrees with this assertion and has been aggressive in communicating about cryptocurrency staking. The petition focuses on how securities legislation regards proof-of-stake services, demonstrating that they are not the same as securities.

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Harold

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