In A Detailed Petition, Coinbase Explains Why Crypto Staking Is Not Securities
The U.S. Securities and Exchange Commission (SEC) has been continuously stressing that crypto staking should be brought under its jurisdiction as it falls under the US securities laws.
However, crypto exchange Coinbase has come for the defense of the entire crypto industry while communicating proactively on the matter of crypto staking through its “Petition for Rulemaking” published on Monday, March 20.
In its petition, crypto exchange Coinbase explains why the SEC shouldn’t universally label staking as securities. In its 18-page document submitted to the SEC, Coinbase wrote on how securities laws treat services linked to validating the proof-of-stake protocols.
This document is a response to SEC’s February crackdown on Kraken’s staking program wherein the securities regulator charged the exchange for “failing to register the offer and sale of their crypto asset staking-as-a-service program,” which they qualified as securities.
Coinbase argues that the US SEC shouldn’t treat crypto staking as a monolith operation concept. The crypto exchange further emphasizes that the core staking services don’t meet the criteria of the Howey Test, which would otherwise qualify them as securities.
Coinbase stressed that the opportunity cost of crypto staking is not an investment and doesn’t involve the investment of money. With staking, crypto users temporarily give up the alternative use of their assets and not money, says Coinbase.
Coin based added that with crypto staking, there’s no common enterprise among stakers or even between the service providers and stakers. Here, users get to retain full authority over their assets and can unstake them, sell, vote, pledge, hypothecate, or even dispose of them without the need of the service provider.
As per Coinbase, the core staking services also fail to meet the “expectation of profit” standard since the rewards users receive are nothing but payments for the services rendered.
To guide the SEC through this, Coinbase has presented several historical precedents such as the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000 and the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, from 2017.
Crypto exchange Coinbase has urged the SEC to take a different regulatory approach or it could have significant economic consequences of its actions on the crypto ecosystem.
Right after the US SEC charged Kraken for its crypto staking services, Coinbase clarified that its crypto staking services take a different approach from that of Kraken’s and that they don’t qualify as per SEC’s securities rules. Coinbase CEO Brian Armstrong has also shown the willingness to take matters to the court if required.