Coinbase Voluntary Move Advocating Crypto Staking; Petitions SEC

• The US regulator took strict actions against staking services in the past
• Coinbase proactively submits a petition to the SEC in defense of staking.

Leading US crypto exchange Coinbase changed its action with the SEC regarding crypto staking regulations. Last month, the exchange firm opposed the US financial regulator’s strict, repressive activities against staking operations. Coinbase clarified its stance towards staking and was willing to defend the matter legally. But the recent petition to the SEC is a relatively flexible way to move ahead on the subject. 

Coinbase’ Clarifies Staking to the SEC

Coinbase published a “Petition for Rulemaking – “Proof-of-Stake” Blockchain Staking Services” to the United States Securities and Exchange Commission on Monday, March 20. The long document noted a lot of clarification and explanation of crypto staking operations in efforts to change the perception of being treated as a security. 

While citing multiple operations under staking, the company argued that some of the existing models could be subject to an investment contract, but not all of it. Given that security must pass the Howey test, the exchange firm stated the core staking operations do not fulfill the test’s conditions. 

To put it in context, Coinbase clarified there’s no capital invested in staking. Though it has an opportunity cost, it is not an investment. In staking, the owner does not give ownership of his assets, rather, the asset gets refrained from getting used for any other purpose for a certain timeframe. The restriction of its use for transactions like activities does not immediately indicate a loss of money. 

The user holds complete ownership of the assets, and no entity plays a role either among stakers themselves or between stakers and service providers. In addition, stakers hold full authority over their assets and are responsible for their unstaking, selling, or any other possible operation. 

Staking Fails as Security

While eliminating the profitability factor in staking, the company emphasized that there’s no “expectation of profit” in core staking services. Users receive payments for their services as rewards which should not be treated as rewards or profits. Unlike traditional investment, which consists of managerial efforts, staking services involve ministerial efforts. 

In addition, the petition also underlines the efficacies of regulatory actions against crypto industry that could lead to heavy economic losses. It also requested a different approach towards the staking operations and put several past regulatory references to frame stalking regulations. 

The crypto exchange firm’s shift from the strict condemnation of financial watchdog to a proactive approach for explaining and clarifying staking operations attracted quiet attention. 

SEC Against Crypto Staking in the Past

In February, the SEC went after crypto exchange Kraken seeking a crackdown on staking services. It barred the firm from offering the services and also made it pay 30 million USD worth in fines for past crypto staking services offerings. The regulator cited staking as security and the exchange’s offering as a security violation. 

Coinbase, in response to the action, clarified its stance giving validation to staking as services and “defend this in the court if needed.” CEO Brian Armstrong shared the company’s opinion over Twitter with a blog post by the company’s Chief Legal Officer Paul Grewal, highlighting that staking services are not securities. 

Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.

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