Coinbase Says Its Staking Products Are Not Securities

Coinbase Says Its Staking Products Are Not Securities

In Short

  • Crypto exchange Kraken pays $30 million and shuts down its staking service
  • COIN falls 14% after speculation that Coinbase may shut down its staking program
  • Coinbase defends staking service saying its not a security and will defend its position in court

In another move by the US Securities and Exchange Commission, cryptocurrency exchange Kraken on Thursday agreed to pay a settlement amount of $30 million and shut down its ‘staking service’ over allegations that it violated the agency’s regulations.

The impact of the move is far-reaching. Jesse Powell, the founder and former CEO of the exchange, tweeted a video featuring SEC chair Gary Gensler, who stated on CNBC that to be deemed compliant, those providing staking rewards must have complete, fair, and truthful disclosure.

COIN price takes a tumble

Following the news, the share price of the largest crypto exchange in the U.S., Coinbase, which offers its own staking services, fell around 14% on Thursday on rumors that the SEC might disallow crypto staking for retail customers. 

However, Coinbase representatives have come out defending their crypto-staking service, arguing that it cannot be considered a security.

Coinbase vs. SEC

“Staking is not a security under the US Securities Act, nor under the Howey test, which the SEC uses to determine whether an investment contract is a security. The Howey test comes from a 1946 Supreme Court case – and there is a separate discussion to be had about whether that test makes sense for modern assets like crypto,” wrote the company in a blog post

Paul Grewal, Coinbase’s chief legal officer, argued that staking does not fulfill the four criteria of the Howey test: investment of money, common enterprise, reasonable expectation of profits, and the efforts of others.

CEO of Coinbase, Brain Armstrong, tweeted that the company is even ready to defend its position in court if needed. 

The SEC believes users are allowed to stake their coins without having to purchase or manage the computing equipment necessary for staking. This is similar to crypto lending, where providers would offer crypto depositors high-interest rates for lending out their coins.

As things stand, Coinbase and its peers have to deal with the scathing attack of the SEC and be on the lookout for products that the agency might target next. 

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Himan Mohapatra
Himan Mohapatra
Himan Mohapatra is an industry expert within the crypto-sphere and the primary journalist for Coinmash. He is an expert in finance and disruptive tech, such as blockchain.