Staking is not a security, Coinbase tells the SEC

Coinbase, a cryptocurrency exchange located in the United States, chose to speak proactively about crypto staking, a topic that has lately drawn the attention of authorities. The company’s SEC petition argues that staking cannot be generally classified as a security.

The “Rulemaking Petition” was released by Coinbase on March 20. In an 18-page report, the company analyzed how securities legislation considers services associated with establishing proof-of-stake methods.

It was developed in reaction to the SEC’s crackdown on Kraken’s staking program in February; the SEC accused the exchange of “failing to register the offer and sale of their crypto-asset staking-as-a-service business,” which it considered to be securities.

Coinbase claims in the petition that staking is not a singular operating idea. Although some of t

he current models may qualify as investment contract offers, it is evident that others do not.

The corporation emphasizes that it is primarily the fundamental staking services that do not fulfill the Howey standards.

Basic staking services do not require a monetary commitment since the opportunity cost of staking is not an investment; what consumers temporarily forego is an alternate use of their assets, not money.

In addition, there is no shared business among stakeholders or between stakeholders and service providers. Users maintain complete control over their assets, with the opportunity to unstake, sell, hypothecate, vote, or pledge them independently of the service provider.

According to Coinbase, fundamental staking services do not fulfill the “expectation of profit” requirement since the incentives users get are only compensation for services delivered.

And lastly, fundamental staking services include administrative upkeep rather than conventional investment management.

Coinbase cites the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000, and the 2017 Report of Investigation Under Section 21(a) of the Securities Exchange Act of 1934: The DAO as historical precedents that can inform the SEC’s current regulatory work with crypto staking.

The business reminds authorities of the huge economic ramifications of their actions on the digital asset ecosystem, pushing them to adopt a different stance on the handling of staking services.

Immediately after the February dispute with Kraken, Coinbase openly differentiated its staking services as “fundamentally distinct” from Kraken’s, with CEO Brian Armstrong indicating his willingness to defend this position in court “if necessary.”

Notwithstanding the SEC’s measures, Coinbase assured users that its staking services would continue and “may even expand.”