Coinbase Petitions SEC to Exclude Staking from Securities

Against the backdrop of intense regulatory scrutiny around crypto firms staking activities, Coinbase petitioned the SEC to exclude staking from the agency’s definition of securities.

Crypto exchange Coinbase has acted against the regulator’s laser focus on crypto staking. The company published a petition to the United States Securities and Exchange Commission (SEC) explaining why staking cannot be labelled as securities. Coinbase published the “Petition for Rulemaking” on March 20, which deals with how U.S. securities laws treat services related to validating data on proof-of-stake blockchain protocols.

Coinbase issued the petition in response to the SEC’s controversial measures against crypto exchange Kraken and its staking program. The SEC argued that Kraken’s staking program was an unlawful offer and sale of securities. The agency said that as Kraken’s program was an unregistered offering, “investors did not have adequate information about the company’s financial condition, fees charged, and investment risks.” The SEC’s chair, Gary Gensler, said he believed that staking through an intermediary, such as Kraken, potentially meets the requirements for the Howey Test – the benchmark to determine whether something can be defined as a security under U.S. laws. The SEC and Kraken reached an agreement on the matter in which Kraken agreed to pay $30 million in penalties and shutter its staking program.

Coinbase’s main argument is that staking cannot be seen as a monolithic concept and that while some staking programs subscribe to the definition of investment contract offerings, others do not. The company reasoned that the core staking services do not meet the requirements of the Howey Test. The exchange urged the SEC to provide a viable registration process for staking programs that fall under the definition of investment contracts and clarify its position and views on staking.

Coinbase underscored the importance of establishing the correct regulatory treatment for staking services. The exchange said that inappropriately applying securities law to transaction validation processes could curtail financial innovations and hamper millions of people who own crypto assets.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.