We Could Shut Down ETH Staking Under Regulatory Threat

Brian Armstrong, CEO of the American crypto exchange Coinbase, responded on Thursday to a hypothesis raised on Twitter, where he said his company would shut down its Ethereum validator node if regulatory authorities mandate U.S.-based exchanges to censor Ethereum transactions.

Armstrong Opts For Shutting Down ETH Staking

The hypothesis was raised on Sunday by Lefteris Karapetsas, CEO of open source portfolio tracker Rotkiapp, who tagged several crypto-based entities, Coinbase inclusive. 

In his hypothesis, Karapetsas raised two options. The options were whether these organizations would comply with regulatory authorities in censoring Ethereum transactions, or shut down the Ethereum staking service altogether.

While the matter is only an assumption, Armstrong went for the latter option, believing that shutting down his company’s node will be a protection for the blockchain network at large, saying that he is focusing “on the bigger picture”. 

It is noteworthy that a shut down of this kind will also affect the company’s recently launched ETH staking service for institutional users on its platform in early August. In his comment, however, the Coinbase boss proved optimistic, as he added that “some better option (C)” might arise that can lead to a better outcome.

Ripple Effect of OFAC Sanctions on Tornado Cash

The concerns stem from the recent sanctions by the U.S. Treasury Department on the crypto mixer Tornado Cash, where the department banned American crypto users from using the mixer. The regulator further tasked its subsidiary agency, the Office of Foreign Assets Control (OFAC), with the work of enforcing the ban on transactions connected to the privacy protocol.

Tornado Cash, which is notable for its private transactions across various protocols, has become a major tool for hackers to move stolen funds. This is evident in major hacks like the Axie Infinity and the Nomad bridge hacks. Hence, the major reason behind the sanction by the Treasury Department.

Coinbase, as a U.S.-based crypto exchange running an Ethereum validator node, is under compulsion to cancel transactions affiliated with the Ethereum-based crypto mixer. The same would apply to other validator nodes running on the Ethereum network. However, the whole matter remains a hypothesis.