While Coinbase had petitioned the SEC earlier this week to establish clear laws on staking, the US financial watchdog issued a warning against the exchange through a Wells Notice. What exactly is going on?
SEC warns Coinbase on staking
For several weeks now, the U.S. regulation has been on a crusade against the cryptocurrency ecosystem. Now it’s Coinbase’s turn to find itself in the crosshairs of the Securities and Excange Commission (SEC), regarding a hypothetical violation of securities laws by its staking services.
To date, no lawsuit has been filed, it is actually the issuance of a Wells Notice. This should be seen as a warning, in which members of the SEC are calling for legal action, and while nothing is certain at this point, it may indeed end up in court.
This Wells opinion comes two days after Coinbase just happened to petition the SEC to develop rules on staking services to bring regulatory clarity to the United States. Ironically, the SEC’s warning states that it has “identified violations” with respect to Coinbase Earn, Coinbase Prime and Coinbase Wallet, but does not provide any detailed explanation.
While Coinbase said it was prepared to defend its legitimacy in court should such a scenario arise, CEO Brian Armstrong made it clear that “the court process will provide an open and public forum before an impartial body where [Coinbase can] make it clear to everyone that the SEC simply has not been fair” :
5/ Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on…
– Brian Armstrong (@brian_armstrong) March 22, 2023
Coinbase has played the card of transparency
The fact that the SEC is now intervening raises questions, as the financial regulator was aware of the platform’s activities, as Brian Armstrong points out:
Two years ago, the SEC reviewed our business in detail and approved Coinbase’s IPO. Our S1 clearly explained our listing process and included 57 staking references. Coinbase runs a rigorous asset review process and has rejected over 90% of the assets that have applied to be listed on the platform. “
In fact, this Wells notice follows an investigation that dates back to the summer of 2022. At that time, the SEC had asked the exchange what the “path to registration” might look like for it, given the specificity of its business. In the space of 9 months, the two entities met 30 times.
Last January, the SEC cancelled a meeting that was to take place the next day, in which it was to provide comments on two of the platform’s proposals on registration models. All these events therefore make Coinbase think that there is dissension within this regulator, in the way of dealing with cryptocurrencies.
The regulatory blur is therefore maintained in the United States, and Coinbase has reacted with a video in which it encourages the country not to settle for the 25th place in the ranking relating to economic freedoms in the world:
Crypto can provide a meaningful update to the existing financial system and increase economic freedom in the world.
It’s time to update the system. pic.twitter.com/KXr4izdUDG
– Coinbase (@coinbase) March 22, 2023
