US regulators have set their sights on crypto-staking services this week. It is known that the US Securities and Exchange Commission (SEC) is targeting the staking service offered for some altcoins. Kraken was primarily affected by this situation and settled the case by paying a certain amount of fine. Now, the officials of Coinbase, one of the major exchanges offering staking services, come to the fore with various comments on the subject. Here are the latest developments…
Coinbase chief criticizes SEC’s staking moves
Rival exchange Kraken has left behind accusations brought by the SEC that the exchange failed to register its “crypto staking program as a service” offer and sale. He agreed to pay a $30 million fine. As we reported on cryptokoin.com, SEC Chairman Gary Gensler said action against Kraken should “warn” people. Coinbase’s Chief Legal Officer, Paul Grewal, said that Coinbase’s schedule was not affected by the news, adding that Coinbase’s staking services are “fundamentally different” from Kraken’s. Staking is not a security under the U.S. Securities Act or the Howey Test, he then argued in a blog post Friday evening.
In a blog post, Coinbase Chief Legal Officer Paul Grewal argued that missteps in regulating the technology underlying staking ecosystems could have serious and negative consequences, including forcing US consumers to switch to less regulated foreign platforms. Grewal was adamant that Coinbase’s staking services are not securities. The post comes a day after Kraken exchange shut down its staking services in the US in response to a Securities and Exchange Commission enforcement lawsuit.
“Given the importance of this technology, getting regulation wrong could seriously harm the development of the crypto industry in the US,” Grewal wrote. By introducing “aggressive mandates” and adding securities laws to the staking ecosystem, regulators “can prevent US consumers from accessing essential crypto services and push users to offshore, unregulated platforms,” he said.
What are the prominent altcoins in terms of staking?
Cryptocurrencies such as Ethereum (ETH), Cardano (ADA), Cosmos (ATOM), Solana (SOL), Tezos (XTZ) are included in the “Earn” service, where Coinbase offers its staking service. In general, among the prominent ones in terms of staking, there are coins such as NEAR, MINA, BTT, ANKR, SKL, INJ.
Howey test for securities
“Staking is not a security under the U.S. Securities Act or the Howey Test, which the SEC uses to determine whether an investment contract is a security,” Grewal said, adding that whether this applies to crypto is currently under discussion. According to Grewal, each deserves a separate discussion. Furthermore, the respective services do not constitute a “money investment even under an expanded definition” as staking clients “retain full ownership of their assets at all times and retain the right to ‘take back’ these assets in accordance with the underlying protocol”.
Grewal said staking did not meet Howey’s criteria for a joint venture because “assets are staked in decentralized networks” and transactions are verified “through a community of users, not a partner organization.” He added that staking services Howey Test did not meet its “reasonable profit expectation.” Staking rewards are determined through the protocol, not Coinbase. “So this does not fit the case law definition of a joint venture,” Grewal said. “Finally, staking services do not award rewards based on ‘efforts of others’,” Grewal said. “These are IT services, not investment services,” he added.
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