Coinbase, a cryptocurrency exchange with headquarters in the United States, made the proactive decision to speak out about crypto staking after it recently caught regulators' notice. The corporation reasons why staking cannot be categorically categorised as securities in its appeal to the Securities and Exchange Commission (SEC).
Coinbase released the "Petition for Rulemaking" on March 20. The company examined how securities law handles services for establishing proof-of-stake methods in an 18-page report. Written in response to the SEC's crackdown on Kraken's staking programme in February, when the exchange was accused of "failing to register the offer and sale of their crypto asset staking-as-a-service business," which the SEC deemed to be a form of securities.
Coinbase contends in the petition that staking is not a single, unified idea. While some of the current models might qualify as investment contract offerings, others obviously cannot. The business highlights that the fundamental staking services in particular do not pass the Howey test.
Since the opportunity cost of staking is not an investment and users are temporarily giving up the alternative use of their assets instead of money, the core staking services do not require a monetary investment.
Moreover, there is no shared enterprise between stakeholders or between stakeholders and service providers. Users still have complete control over their assets and can unstake, sell, hypothecate, vote, pledge, or otherwise dispose of them without the assistance of the service provider.
Considering that the rewards users receive are merely money for services provided, Coinbase claims that core staking services also fall short of the "expectation of profit" criteria. And lastly, key staking services involve ministerial upkeep rather than managing endeavours in the sense of conventional investment.
The Committee on Special Investment Advisory Services from 1973, the SEC's Regulation Fair Disclosure from 2000, and the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO from 2017 are three historical precedents that Coinbase cites as being relevant to the SEC's current regulatory work with cryptocurrency staking.
The company asks the regulators to treat staking services differently by reminding them of the considerable economic effects of their decisions on the ecosystem for digital assets.
When Coinbase and Kraken collided in February, Coinbase publicly said that their staking systems were "fundamentally different" from Kraken's, and CEO Brian Armstrong said the business was prepared to defend this stance in court "if needed."
Customers were reminded by Coinbase that its staking services would still be offered and "may even rise" in spite of the SEC's efforts.
Editor- Sarah Fathima Ahmed
March 2023, CryptoniteUae