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Home»News»Cryptocurrency»Coinbase Files Petition With SEC Explaining Staking Is Not Securities

Coinbase Files Petition With SEC Explaining Staking Is Not Securities

MatthewBy MatthewMarch 21, 2023No Comments3 Mins Read
Coinbase Files Petition With SEC Explaining Staking Is Not Securities
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United States-based cryptocurrency exchange Coinbase decided to proactively communicate about staking of cryptocurrencies, which had recently attracted the attention of regulators. The company’s petition to the Securities and Exchange Commission (SEC) explains why staking cannot be universally labeled as securities.

Coinbase published the “Petition for Regulation” on March 20. In In an 18-page document, the firm focuses on how securities law treats services related to the validation of proof-of-stake protocols. The SEC accused the exchange of “failing to register the offer and sale of its crypto asset staking program as a service,” which it branded securities.

In the petition, Coinbase argues that staking is not a monolithic operating concept. While some of the existing models may fall under the definition of investment contract offers, others clearly may not. In particular, it is the basic staking services that do not meet the criteria of the Howey test, the company stresses.

Basic staking services do not imply an investment of money, since the opportunity cost of staking is not an investment: what users temporarily give up is the alternative use of their assets, not money.

There is also no common enterprise between stakers or between stakers and service providers. Users retain full authority over their assetswith the ability to unstake, sell, mortgage, vote, pledge or otherwise dispose of them regardless of the service provider.

According to Coinbase, core staking services also do not meet the “profit expectation” rule, as the rewards received by users are simply payments for services rendered. Finally, core staking services involve ministerial maintenance and not management efforts in the traditional investment sense.

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Coinbase cites several historical precedents that may guide the SEC in current regulatory work with cryptocurrency staking.: namely, the 1973 Committee on Special Investment Advisory Services, the 2000 SEC Fair Disclosure Rules, and the Investigative Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, from 2017.

The company reminds regulators of the significant economic consequences of its actions in the digital asset ecosystem, urging them to take a different approach in the treatment of staking services.

Right after the collision with Kraken in February, Coinbase publicly distanced its staking programs as “fundamentally different” from Kraken’s, with company CEO Brian Armstrong expressing his willingness to defend this position in court “if necessary.”

Coinbase reiterated to clients that its staking services will continue and “in fact may increase” despite the SEC’s actions.

Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.

Keep reading:

Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.

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