Coinbase CEO Concerned About SEC Ambitions to Crackdown on Crypto Staking

On Feb. 9, Brian Armstrong cautioned that they were hearing rumors that the SEC would like to “get rid of crypto staking in the U.S. for retail customers.”

He said he hopes that is not the case as “I believe it would be a terrible path for the U.S. if that was allowed to happen.”

Armstrong highlighted some of the benefits of staking, adding that it brings many positive improvements to the industry. These include scalability, increased security, reduced carbon footprints, and enabling users to participate in running a crypto network.

1/ We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.

— Brian Armstrong (@brian_armstrong) February 8, 2023

SEC: Regulation by Enforcement

The SEC has other ideas, however, and wants to treat proof-of-stake tokens the same as it does stocks – as securities.

The Coinbase boss warned that the United States should be a place where new technologies and innovation are encouraged “and not stifled by lack of clear rules.”

“When it comes to financial services and web3, it’s a matter of national security that these capabilities be built out in the U.S.”

The SEC has been regulating by enforcement with its constant crackdowns and lawsuits against crypto companies. It has yet to provide clear guidance or a framework for fintech firms to operate under, instead, it conducts industry sweeps seeking targets that it can accuse of selling securities.

“Regulation by enforcement doesn’t work,” Armstrong said before adding, “It encourages companies to operate offshore, which is what happened with FTX.”

Last year, Paradigm issued a report stating that proof-of-stake does not entail a “common enterprise” as detailed in the Howey Test that the SEC uses to determine what it considers a security. The report concluded:

“Analyzing the economic realities of staking ETH on Ethereum’s proof-of-stake network, a court should find that staking fails to satisfy the Howey Test because there is no “common enterprise” and validators are never relying on the “efforts of others”.”

Cardano Founder Has a Dig

Cardano founder Charles Hoskinson took advantage of the opportunity to have a swipe at his competitor instead of standing together for the benefit of the entire industry.

“Ethereum staking is problematic. Temporarily giving up your assets to someone else to have them get a return looks a lot like regulated products.”

The SEC has hinted that ETH is a security due to its staking mechanism, but then the premise could apply to all proof-of-stake tokens should it become legislation.