Coinbase Wants to Convince SEC Staked Tokens Are Not Securities

The publicly
traded and one of the biggest crypto exchanges in the ecosystem, Coinbase (<a href=”https://www.financemagnates.com/tag/coinbase/” target=”_blank” rel=”follow”>NASDAQ:COIN</a>),
has prepared an 18-page document titled the ‘Petition for Rulemaking’ which objective
is to convince US regulators, including the Securities and Exchange Commission
(<a href=”https://www.financemagnates.com/tag/sec/” target=”_blank” rel=”follow”>SEC</a>), that <a href=”https://www.financemagnates.com/terms/s/staking/” class=”terms__main-term” id=”ebfdd4d9-00b3-41ff-bff5-878cd2eb105f” target=”_blank”>staking</a> should not be put under the same regulatory framework as
securities.Coinbase Disagrees with
SEC Statement on StakingCryptocurrency
holders can receive rewards as an incentive by staking their cryptos with a
blockchain validator. These rewards typically come in the form of newly mined
cryptocurrencies. However, in exchange for these rewards, the holders lose
control over their original holdings until they decide to unstake them.Staking is
a popular service among crypto exchange and digital assets providers. However,
it has recently come under closer scrutiny by regulators, including the SEC.
The US market watchdog claims that at least some of the staked tokens resemble
securities and should therefore be covered by the same rules. In the
institution’s view, offering staking without obtaining the relevant authorizations
and licenses breaches the US Securities Act.Binance
disagrees with this statement and has proactively communicated on
cryptocurrency staking. <a href=”https://assets.ctfassets.net/c5bd0wqjc7v0/37LaXLBCdgLHa7GE4TPnmw/7824df367e12f4136951db794a5df63d/Staking_Comment_Letter_3-20-2023_FINAL.pdf”>The
petition</a> focuses on showing how securities regulations treat proof-of-stake
services and explaining that they are essentially not the same as securities.Coinbase’s publication
highlights the nuanced nature of staking as an operation concept, emphasizing
that it is not a monolith. While specific staking models may qualify as
investment contract offerings, others do not. In particular, Coinbase asserts
that core staking services fall outside the Howey test criteria that SEC uses
to determine whether an asset is a security or not.”The
risk of getting regulation wrong is that innovation moves offshore to
jurisdictions that do get it right. The US is competing with the EU, UK, Hong
Kong, Singapore, UAE, and a host of other countries that are racing to
establish crypto hubs by proposing clear regulatory frameworks. Letting
critical infrastructure migrate to other jurisdictions – the validators that
are paid through staking services – because rules in the US are inappropriate
is unnecessary,” Coinbase commented in the petition.SEC Looks at Binance’s and
Kraken’s HandsCoinbase’s
actions come a month after <a href=”https://www.financemagnates.com/terms/c/cryptocurrency-exchange/” class=”terms__secondary-term” id=”601e2e5f-0c28-4253-9ad4-5e6b251ba2fa” target=”_blank”>cryptocurrency exchange</a> Kraken <a href=”https://www.financemagnates.com/cryptocurrency/kraken-shuts-staking-as-a-service-in-us-amid-30m-sec-settlement/” target=”_blank” rel=”follow”>shut down its staking-as-a-service</a> in the US and paid $30 million to settle with the SEC. The SEC raised
risk-related concerns on the platforms offering staking-as-a-service as they
have “very little protection.”In
addition, the cryptocurrency exchange has stated that it plans to provide
staking services to non-US customers through a distinct subsidiary, despite the
recent settlement. Notably, the settlement agreement between the SEC and
Kraken was reached a mere day after media reports surfaced regarding an <a href=”https://www.financemagnates.com/cryptocurrency/kraken-faces-sec-probe-over-unregistered-securities-listings/” target=”_blank” rel=”follow”>ongoing
regulatory inquiry</a> into the exchange’s alleged offering of unregistered
securities.<blockquote>Settlements are not law. They’re a decision that the economics of settling are better than fighting, no more.The SEC thinks staking-as-a-service is a security. Kraken didn’t admit or deny either way.It may be a tough question, but the SEC hasn’t answered it either way today.— Jake Chervinsky (@jchervinsky) <a href=”https://twitter.com/jchervinsky/status/1623792748464594944?ref_src=twsrc%5Etfw”>February 9, 2023</a></blockquote>A few days
later, crypto company <a href=”https://www.financemagnates.com/cryptocurrency/paxos-stops-busd-mint-after-sec-action-binances-cz-calms-funds-are-safe/” target=”_blank” rel=”follow”>Paxos halted the issuance of new BUSD stablecoins</a> owned
by Binance. This was after news that the company faced an SEC lawsuit for
violating consumer protection rules.<blockquote>1/ This morning, Paxos announced it will halt minting new <a href=”https://twitter.com/hashtag/BUSD?src=hash&ref_src=twsrc%5Etfw”>#BUSD</a> tokens effective February 21. Read the full press release from Paxos here: <a href=”https://t.co/jXZY1ak8DR”>https://t.co/jXZY1ak8DR</a>— Paxos (@PaxosGlobal) <a href=”https://twitter.com/PaxosGlobal/status/1625091554951004161?ref_src=twsrc%5Etfw”>February 13, 2023</a></blockquote>In
addition, Binance, one of the world’s largest crypto exchanges, <a href=”https://www.financemagnates.com/cryptocurrency/binance-talks-about-compliance-gaps-and-expects-to-pay-penalties/” target=”_blank” rel=”follow”>has faced some
compliance “gaps” </a>in the past and expects to pay fines to settle with
US regulators, Patrick Hillmann, the company’s Chief Strategy Officer (CSO), admitted
in an interview published after BUSD turmoil.