On March 20, 2023, Coinbase, a cryptocurrency exchange based in the United States, submitted a petition to the U.S. Securities and Exchange Commission (SEC) challenging the classification of stakes as securities.
Americans love their stake. Here’s why we need to keep staking–the accountant of the blockchain–in the U.S. 🧵 pic.twitter.com/hPeM99LI3e
— Coinbase (@coinbase) March 16, 2023
The petition was composed in response to the SEC’s crackdown on Kraken’s staking program in February 2023, when the Commission accused the exchange of “failing to register the offer and sale of their crypto-asset staking-as-a-service program,” which it deemed to be securities.
In the petition, Coinbase argued that the definition of investment contract offerings may apply to some current staking models but not all. The exchange asserted that the core staking services do not satisfy the requirements of the Howey test, a four-factor test that securities must pass, according to the Supreme Court ruling in SEC v. W.J. Howey Co. (1946).
Coinbase emphasized that staking does not require financial investments, and the opportunity cost of staking is not an investment. Instead, customers temporarily give up the alternative use of their assets, not financial investments.
According to Coinbase, there is no common enterprise between stakers or between stakeholders and service providers. Users have complete control over their assets and are free to dispose of them however they see fit.
Coinbase cited three historical precedents that it deems relevant to the SEC’s current regulatory work with cryptocurrency staking: the Committee on Special Investment Advisory Services from 1973, the SEC’s Regulation Fair Disclosure from 2000, and the Report of Investigation Under Section 21(a) of the Securities Exchange Act of 1934: The DAO from 2017.
The exchange asked the regulators to treat staking services differently by reminding them of the considerable economic effects of their decisions on the ecosystem for digital assets.
A user named Crypto Elephant reacted to the company’s Twitter post and stated that they believe the United States is moving in the wrong direction when it comes to crypto asset regulation. They pointed out that the country is only second to China in terms of crypto prohibitions.
It seems to me like the US is heading into the worst direction possible regarding every single regulation when it comes to crypto. Only China by fully forbidding it is doing worse rn. And these guys are just folding back on their regulations starting with Hongkong.
— Crypto elephant (@elephant_crypto) March 16, 2023
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