The executives of crypto exchange Coinbase are declaring their willingness to defend its crypto staking services, arguing that they can not be deemed as a security. This is a fight that they will bring to the U.S. court if needed, tweeted the CEO Brian Armstrong.
The decision comes after the Securities and Exchange Commission (SEC) and cryptocurrency exchange Kraken negotiated a deal on February 10 to halt providing staking services or programmes to customers in the nation.
Kraken is accused by the SEC for failing to “register the offer and sale of their crypto asset staking-as-a-service program” as the product is now considered as securities by the commission. In addition to halting the service, Kraken consented to pay civil fines, prejudgment interest, and disgorgement totaling $30 million.
Paul Grewal, the chief legal officer at Coinbase, expressed his view on the matter in his blog, remarking that staking does not meet the Howey test’s four criteria like investment of money, common enterprise, expectation of profit, and efforts of others, as well as the U.S. Securities Act. He wrote that “the Howey test comes from a 1946 Supreme Court case – and there is a separate discussion to be had about whether that test makes sense for modern assets like crypto”.
Grewal writes that the aim of securities law is to balance out informational disparities. But since everyone involved in staking is connected to the blockchain and can confirm transactions via a community of users who have equal access to the same information, there is no information asymmetry in the process.
Blockchain technology can spur significant economic growth in the US and staking is a safe and critical aspect of that technology. […] But regulation by enforcement that does nothing to help consumers and drives innovation offshore is not the answer. Getting it right on staking matters.
Paul Grewal
Critics opposed the SEC’s decision regarding crypto staking. Commissioner Hester Peirce publicly criticised her own organisation for shutting down Kraken’s staking service in a statement titled “Kraken Down.” Peirce claimed that governing an emerging business by enforcement is not a fair or efficient regulation method.
