Coinbase Challenges SEC On Core Staking Services, Urges Clarity On Securities Regulation

Coinbase, one of the largest crypto exchanges, has requested the US Securities and Exchange Commission (SEC) to clarify whether core staking services are securities.

In a letter submitted to the SEC on March 20th, Coinbase argued that staking services do not meet the criteria of the Howey test. The Howey test is a legal test used to determine whether certain transactions qualify as investment contracts, which are considered securities. 

Coinbase also highlighted that the SEC had not previously indicated that staking services might constitute an investment contract. However, this comment letter comes in response to a recent SEC settlement with Kraken regarding its staking services in February.

The company emphasized that staking services are not a monolith and that a number of different models exist. While some staking services might be categorized as offering an investment contract, it is argued that core staking services do not. 

The company further highlighted that the SEC to provide a path for workable registration for those staking services that may constitute an investment contract. It also asked the SEC to engage in a public process to articulate its views on how securities law applies to staking services.

Coinbase Urges Proper Regulatory Treatment 

Coinbase stated that it is important to get the regulatory treatment of staking services right, as consensus mechanisms form the backbone of the digital asset ecosystem. 

The company cautioned that the inappropriate application of securities laws to the transaction validation process could unnecessarily stifle financial innovation. 

Additionally, it harms the 20% of Americans who own crypto and three-quarters of Americans who believe that the current financial system is unfair and needs an update. 

Coinbase argued that the US is competing with other countries to establish crypto hubs by proposing clear regulatory frameworks. The company noted that the risk of getting regulation wrong is that innovation moves offshore to jurisdictions that do get it right.

According to the letter, Coinbase is pursuing its goal of promoting greater economic freedom by enhancing the accessibility, speed, and affordability of financial products and services. 

The company aims to digitize the existing financial system, which predates the computer era, and create a digitally-native system. To accomplish this objective, Coinbase is developing the most dependable products, tools, and services in the US.