Coinbase cryptocurrency exchange talks about crypto staking in the industry, petitioning the securities and exchange commission (SEC) with an explanation as to why staking cannot be generally classified as securities.
The “Rulemaking Petition” was released by Coinbase on March 20. In an 18-page report, the company analyzed how securities legislation considers services associated with establishing proof-of-stake methods.
It was developed in response to the SEC’s crackdown on Kraken’s staking program in February; the SEC charged the exchange with “failing to register the offer and sale of their crypto-asset staking-as-a-service business,” which it considered being securities.
Coinbase claims in the petition that staking is not a singular operation idea. While some of the existing models may qualify as investment contract offerings, it is evident that others do not. The corporation underlines that it is primarily the fundamental staking services that do not meet the Howey standards.
Basic staking services do not require a monetary commitment since the opportunity cost of staking is not an investment; what consumers temporarily forego is an alternate use of their assets, not money.
In addition, there is no shared enterprise among stakeholders or between stakeholders and service providers. Users retain complete control over their assets, with the opportunity to un stake, sell, hypothecate, vote, or pledge them independently of the service provider.
According to Coinbase, fundamental staking services do not meet the “expectation of profit” requirement because the incentives users receive are only payments for services delivered. And finally, fundamental staking services involve administrative upkeep rather than traditional investment management.
Coinbase cites the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000, and the 2017 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO as historical precedents that can inform the SEC’s current regulatory work with crypto staking.
The company reminds regulators of the huge economic ramifications of their actions on the digital asset ecosystem, pushing them to take a different stance on the treatment of staking services.
Immediately after the February dispute with Kraken, Coinbase openly differentiated its staking services as “fundamentally distinct” from Kraken’s, with CEO Brian Armstrong indicating his willingness to defend this position in court “if necessary.”
Notwithstanding the SEC’s measures, Coinbase assured users that its staking services will continue and “may even increase.”
