Cryptocurrency exchange Coinbase has defended its staking service, saying that it is not a security, and that it is willing to defend it before a court of law. The stance follows a decision by the SEC that forced rival exchange Kraken to end similar services after being charged a $30 million fine by the regulator.
Brian Armstrong, the CEO, and co-founder of Coinbase posted Monday on Twitter that, ‘‘(the exchange’s) services are not securities. We will happily defend this in a court if needed.’’ The company offers staking services through its Coinbase Earn program, where users can stake certain assets for regular payments. Users can also stake on some of its other platforms like Coinbase Wallet and Coinbase Cloud.
Staking Does Not Meet The Howey Test, Says Coinbase
In a blog post by Coinbase’s Chief Legal Officer, Paul Grewal, none of the staking services offered by the San-Francisco –based company meets the Howey test – a metric used by the SEC to determine whether an asset is a security or not. That is because they are not an investment of money, not a common enterprise, and have no reasonable expectation of profits nor the efforts of others.
On the element of a ‘‘common enterprise’’, Grewal argues that, for Coinbase’s staking, users only stake assets on a decentralized network, and that the amount paid for the staked assets is only a reward for offering assets as part of a proof-of-stake consensus mechanism, but not as an investment.
Coinbase fears that the action of the SEC – which has been termed by a section of the commission as a form of regulation-by-enforcement – could prevent US consumers from accessing basic crypto services, even forcing some to move to offshore jurisdictions.
