Coinbase Defy US SEC Statement, Says Core Staking Services Are Not Securities

Coinbase, the largest crypto exchange in the U.S., sends a letter to the U.S. Securities and Exchange Commission (SEC) explaining why core staking services are not securities. The exchange argues the SEC statement on staking services is at odds with the Kraken settlement, asking the SEC to clarify that core staking services are not securities.

Paul Grewal, chief legal officer at Coinbase, on March 21 said the exchange has submitted a comment letter to the U.S. Securities and Exchange Commission in response to its petition for rulemaking on digital asset securities regulation last year. The exchange asserts core staking services do not qualify as securities, but software services.

“Today Coinbase submitted a comment letter to our July 2022 SEC petition for rulemaking. We explain why core staking services–those that serve as a pass-through for rewards–are not securities offerings.”

Paul Grewal further added that paying someone a fee for some tasks doesn’t make it a securities transaction. Moreover, the U.S. SEC statement on qualifying staking-as-a-service as securities is at odds with the Kraken settlement. Also, it doesn’t define staking services other than what Kraken offered.

Coinbase filed a comment letter asking the U.S. SEC to clarify that core staking services are not securities. Core staking services always failed to pass the Howey test, the old methodology the SEC is trying to apply to new crypto technology, including staking.

Coinbase Reminds US SEC About Conditions of Securities

Grewal says the core staking doesn’t meet the conditions of qualifying securities under the rule. It includes an investment of money, common enterprise, expectations of profit, and profits linked to the managerial or entrepreneurial efforts of others.

However, core staking services involve no investment risk and provide no managerial or entrepreneurial efforts. Moreover, the staking rewards are not profit, but service fees paid as compensation.

Coinbase blamed US SEC to contend with rapidly growing technology such as analytics and computing services in the past. Instead of focusing on insider trading actions and investor protection, the SEC pursued rulemaking.

“Declaring staking services to be securities contrary to the law does not serve any purpose of protecting of investors, promoting market efficiency, or encouraging capital formation in the US economy, said Paul Grewal.”

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Varinder is a Technical Writer and Editor, Technology Enthusiast, and Analytical Thinker. Fascinated by Disruptive Technologies, he has shared his knowledge about Blockchain, Cryptocurrencies, Artificial Intelligence, and the Internet of Things. He has been associated with the blockchain and cryptocurrency industry for a substantial period and is currently covering all the latest updates and developments in the crypto industry.

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