Coinbase to fight for the industry if SEC goes after Bitcoin and Ethereum staking in US

• Brain Armstrong speaks up following rumors that the U.S. SEC is targeting Crypto staking. 
• Coinbase staking services fails to meet the Howey test elements. 

Coinbase exchange is not pleased with the SEC’s rumored plans to go after cryptocurrency staking, and the exchange is making it crystal clear. Coinbase’s head Brian Armstrog is reiterating that “Coinbase’s staking services are not securities. We will happily defend this in court if needed.”

Coinbase’s staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3

— Brian Armstrong (@brian_armstrong) February 12, 2023

The exchange’s CEO had told the market that SEC was out to crack down on crypto staking in the country, for retail customers. To him, that path would be a terrible one to take. Coinbase has updated its blog with new content explaining why its exchange’s staking services are not securities.

Long-term crypto companies have been migrating from proof of work to proof of stake, as it is a less energy-intensive protocol.

Crypto users around the globe have been leaning more towards staking and its profits. Debates about proof of stake and how it is received on a regulatory level have been a long-term topic of discussion. If regulation is done wrong as Coinbase observed, it could endanger the PoS technology in the U.S. Coinbase observed in the post:

At Coinbase, we’ve been committed to providing our users with a secure, compliant platform to access the cryptoeconomy since day one, and our staking products are not securities. But there are a lot of products in the market called staking and many of them work very differently. Today I’ll focus on core staking services (protocol-based, on-chain staking), like the ones Coinbase offers, which are a vital aspect of crypto and blockchain technologies.”

Coinbase is defining its Crypto staking services before the SEC does

Coinbase offers its main staking service through the Coinbase Earn program. With the program, users can stake selected assets for recurring payment from the blockchain protocol. Users are assured of a stake through products like Coinbase Wallet and Coinbase Cloud.

Coinbase is claiming that its staking is not a security and that staking, in general, is not a security. Coinbase refers to the U.S. Securities Act and Howey test that is used by the SEC to determine what investment contract is or isn’t a security.

However, staking does not meet the four elements of the Howey test. The first element test is the investment of money and Coinbase maintains that staking does not constitute an investment of money.

In Coinbase’s words, when customers ask Coinbase to stake their crypto, they don’t give up anything in return. Customers retain their full ownership of their assets and rights to unstake.

Coinbase also fails to meet the second element “common enterprise” because assets are staked in a decentralized network, Coinbase observed. Stakers are connected by blockchain and validate transactions through a user community and not a common enterprise.

Reasonable expectations of profits and the efforts of others are the last two elements of the howey test. Like the former, Coinbase staking services do not meet the test elements.

Coinbase is trying to communicate that it is important for the SEC to get it right with staking and the regulation surrounding staking.

The purpose of securities law is to correct for imbalances in information. But there is no imbalance of information in staking, as all participants are connected on the blockchain and are able to validate transactions through a community of users with equal access to the same information..

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