In light of reports that the SEC wants to prohibit staking in the United States for retail users, Coinbase CEO Brian Armstrong took to Twitter to defend the company’s staking services.
Coinbase CEO Commits To Defend Staking Services In US Legal Court
The crypto exchange Kraken agreed to pay a $30 million penalty for not registering its offering and selling off its program for staking crypto assets, the SEC stated on Thursday afternoon. The day before, Coinbase CEO Brian Armstrong issued a Twitter warning after learning that the SEC sought to prohibit crypto staking for retail clients in the United States.
In a tweet, Armstrong stated his position on the subject, noting that Coinbase’s staking services do not qualify as securities and that the company is ready to defend this position in court if required.
During an appearance on CNBC’s “Squawk Box” on Friday, SEC Chair Gary Gensler said that this action should serve as a warning to everyone in the cryptocurrency industry. He said that if a platform receives customer tokens and transfers them to its platform, it has authority over those tokens, regardless of how a company describes its offerings. Whether they are described as lend, earn, yield, or provide an annual percentage yield.
Paul Grewal, the chief legal officer at Coinbase, spoke about his opinions on the subject in a blog post. He stated that, in his view, staking did not come under the US Securities Act’s jurisdiction or satisfy the Howey test requirements.
Grewal argued that the Howey test’s four essential components, a commitment of money, a shared business, an expectation of profit, and reliance on other people’s efforts—are not met by staking.
The SEC Might Target Staking platforms
Staked assets on proof-of-stake networks, like Ethereum, are essential to keeping the network running smoothly. Staking demonstrates a validator’s dedication to the network because they are in charge of processing new transactions and storing data. Validators may be compensated for their involvement, but they may also lose some of their staked assets if they are inactive or behave inappropriately.
It’s widely believed that the SEC may target all staking platforms. However, as staking services only account for a small fraction of Coinbase’s revenue, the possible impact would be negligible. According to a recent analysis by John Todaro of Needham, after taking user rewards into account, staking only contributes to less than 3% of Coinbase’s earnings.
