Coinbase, one of the largest cryptocurrency exchanges in the world, is ready to go to court over its staking services. The company’s CEO, Brian Armstrong, has publicly declared via Twitter that the firm will “defend this in court if needed.”
However, the move comes after the Securities and Exchange Commission (SEC) recently ordered crypto exchange Kraken to halt its staking services, claiming it was a security and required registration.
The SEC recently claimed that Kraken failed to register the sale and offer of their crypto-asset staking-as-a-service program, which the commission now qualifies as securities. As a result, the service was halted, and the company was penalized with a $30 million fine for disgorgement, prejudgment interest, and civil penalties.
Coinbase Shares Tumble
As the SEC’s crackdown on Kraken fueled fears of increased scrutiny on local companies, Coinbase’s shares experienced a dramatic drop. In a single trading session, the shares plummeted 14%, marking the largest daily price decline in the company’s history.
Furthermore, on a weekly scale, the stocks have declined by approximately 22% and are currently trading below $60. Earlier this year, the shares hit an all-time low of around $32 before rebounding to $80 during bitcoin’s recovery.
Coinbase: Our Products Do Not Constitute Securities
In a blog post, Coinbase’s Chief Legal Officer, Paul Grewal, firmly stated that staking does not fall under the definition of security according to the US Securities Act or the Howey test.
As per Grewal, crypto staking and, in particular, Coinbase’s product does not meet any of these criteria. Customers authorized access to full ownership of the cryptocurrency funds and owned exactly what they did before.
In addition, Grewal argues that the SEC’s recent decision to classify staking as a security will hinder innovation and push users to offshore, unregulated platforms. Moreover, the Howey test, which stems from a 1946 Supreme Court case, may not be suitable for modern assets like cryptocurrencies, Grewal explained.
Additionally, he also noted that securities law aims to correct information imbalances, but in staking, all participants have equal access to information on the blockchain.
Regulation by enforcement is not the answer, Grewal warned. Staking is a safe and critical aspect of blockchain technology and can spur significant economic growth in the US. I am getting it right on staking matters.
Commissioner Peirce Slams SEC Over Staking Decision the SEC’s decision to classify staking as security has drawn criticism, including from Commissioner Hester Peirce.
In a statement titled “Kraken Down,” Peirce publicly criticized the agency, calling regulation by enforcement “inefficient or fair” for an emerging industry.
The recent decision by the SEC to classify staking as a security has created a dilemma for crypto exchanges offering staking services. While the Kraken case sets a precedent, Coinbase’s CEO has made it clear that the company will not back down and will defend its staking services.
The debate over whether staking should be classified as a security or not has significant implications for the future of the industry. On the one hand, proper regulation could provide greater clarity and protection for investors.
On the other hand, overly strict regulations could stifle innovation and drive users to offshore, unregulated platforms. As the crypto industry continues to grow, the SEC will have to strike a delicate balance between protecting investors and fostering innovation.
However, the outcome of this debate will shape the future of staking services and the SEC’s role in regulating the cryptocurrency industry.
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