Coinbase Ready to Fight in Court to Defend Staking Service, Says CEO

With the United States Securities and Exchange Commission (SEC) going after crypto staking services across the country, Coinbase executives are ready to fight back in court to defend the product if need be.

In a Twitter post on Sunday, the company’s CEO, Brian Armstrong, disclosed that its staking program is not a security and will happily defend it in court if necessary.

The statement follows a recent enforcement action against the exchange’s major rival, Kraken, in which the SEC alleged that its staking-as-a-service program was not properly registered with the regulator.  

The commission also claimed the product violated U.S. security laws as it was offered to retail investors in the country without due diligence.

Kraken agreed to a settlement and paid a fine of $30 million without disputing the claim. The company also discontinued offering the services to its customers in the region as part of the settlement agreement.

Crypto Staking Lacks Basic Qualities of Securities 

Coinbase Chief Legal Officer Paul Grewal said in a separate blog post that crypto staking is not a security under the U.S. Securities Act nor the Howey test, which the market watchdog used to quantify an investment contract as a security offering. 

“Staking is not a security under the U.S. Securities Act, nor under the Howey test. Trying to superimpose securities laws onto a process like staking doesn’t help consumers at all and instead imposes unnecessarily aggressive mandates that will prevent U.S. consumers from accessing basic crypto services and push users to offshore, unregulated platforms,” he said. 

He further pointed out that staking lacks the four elements of the Howey test, such as investment of money, common enterprise, reasonable expectation of profits, and efforts of others.

According to Grewal, staking does not reward users based on the efforts of others, noting that the crypto services are neither entrepreneurial nor managerial or a significant factor that determines the amount of reward a customer earns. 

Correct Imbalances in Information 

The Coinbase legal expert also disclosed that security laws aim to correct “imbalances in information.”

However, when it comes to staking in crypto there is no misrepresentation of data as all users are connected to the blockchain where the validators confirm and executive transactions “through a community of users with equal access to the same information.”

Grewal disclosed that imposing securities legislation on staking could prevent U.S. investors from participating in essential crypto services.