Coinbase faces legal action from the SEC for operating as an unregistered securities exchange, broker, and clearing agency. The company also allegedly offered unregistered securities through its staking program.
However, Coinbase’s CEO and Chief Legal Officer maintain that the exchange is compliant and will not cease operations.
The Securities and Exchange Commission (SEC) issued a press release on June 6, 2023, charging Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.
The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.
The regulator alleged that Coinbase made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities since at least 2019.
U.S SEC also claimed that Coinbase intertwined the traditional services of an exchange, broker, and clearing agency without registering any of those functions with the Commission as required by law.
The SEC argued that the crypto tokens that Coinbase trades are fundamentally securities, the trade of which is strictly regulated under US law.
It also attacked a specific Coinbase product for being directly in breach of securities regulations: the company’s “staking-as-a-service” program, “which allows customers to earn profits from the ‘proof of stake’ mechanisms of certain blockchains and Coinbase’s efforts,” is a direct security in its own right, the SEC argued.
Coinbase Stands Firm Amid Regulatory Pressure
“Even though this complaint came in from the SEC, it’s really business as usual today. We’re continuing to trade our assets on our platform. We’re not going to wind down our staking service.”
Brian Armstrong
Staking is vital for Coinbase to diversify its revenue, mainly from trading fees. Despite the crypto slump, staking earned 8.5% of net revenue in Q2 2023, while trading fees were 90% in 2022.
Armstrong reassured stakeholders that Coinbase would not see a mass exodus of funds due to the SEC lawsuit. He said all funds were fully backed and audited, showing the company’s transparency and accountability as a public firm.
The SEC lawsuit could shape the future of crypto regulation in the US. Coinbase, a leading and influential crypto player, will fight back and contest the SEC’s claims in court.
