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Coinbase is ready to defend the legitimacy of its staking services in court

by Tim

While all eyes are on the Securities and Exchange Commission (SEC) and its hostility towards staking services, Coinbase maintains that they are not securities. If necessary, the platform says it is prepared to go to court to defend its beliefs.

Coinbase maintains that its staking services are not securities

While it was only rumours relayed a few days ago by Brian Armstrong, Coinbase’s CEO, the Securities and Exchange Commission (SEC) quickly confirmed its attentions towards cryptocurrency staking. Indeed, the Kraken platform has paid a penalty of 30 million dollars, under the guise that it would have marketed unregistered securities.

However, such a precedent is worrying for the ecosystem, at least in the United States, as the arguments used by the SEC to qualify staking services are debatable. It is in this uncertain climate that Brian Armstrong has announced that Coinbase will be “happy to defend this in court if necessary”:

While Coinbase has not, to our knowledge, had any run-ins with the SEC on this issue at this time, the fact that the platform offers staking services does not rule out the possibility.

The difference between staking and yield products

Even within the ecosystem, it is common to label any transaction that generates interest as “staking”. However, this misuse of language is a mistake. The term should only be applied to staking tokens on a blockchain with a Proof-of-Stake (PoS) consensus model in order to secure its transactions.

This difference may seem subtle, but it is important, because while it is possible to stake ETH or ATOM, it is not possible to stake BTC or USDC. Any mention to the contrary is therefore inaccurate.

This confusion is also highlighted by regulators, and while it is legitimate to require transparency so that consumers know what is being done with their assets, prohibiting platforms from providing these services may serve the same consumer.

And for good reason, although in an ideal world, staking should be done directly on-chain for decentralisation and self-preservation, we should not forget that these solutions also have an educational role and are a viable alternative for small budgets. For example, it would be impertinent to go and delegate $100 worth of ETH directly on the blockchain, as it would take several years of returns to reimburse the transaction costs.

Coinbase has thus reaffirmed in even more detail that its staking services do not meet the criteria of the Howey test, in particular because the investor retains ownership of his or her crypto-currencies and there is therefore no monetary exchange. This feature is thus much less risky than lending, among others and especially on centralised platforms, where the risk of default is to be taken into account.

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