In the wake of a $30 million fine levied against rival cryptocurrency exchange Kraken, Coinbase CEO Brian Armstrong has taken a stand to defend his exchange’s staking services. Armstrong stated on Twitter that “Coinbase’s staking services are not securities,” and that the company is prepared to defend this stance in court if necessary.
Preemptive Defense
Coinbase’s shares fell by over 20% following the SEC’s targeting of crypto staking services. However, Armstrong believes that crypto companies should not be restricted from doing business and instead should be encouraged to grow in the US. He further stated that it would be a “terrible path” for the US to restrict crypto staking.
Read More: Voyager Defends Binance Acquisition, Calls FTX Opposition Hypocritical
Coinbase’s chief legal officer, Paul Grewal, backed up Armstrong’s stance in a recent blog post. Grewal argued that staking is not a security under the US Securities Act or the Howey test. He stated that the purpose of securities law is to correct information imbalances, but there is no imbalance in staking as all participants are connected on the blockchain and have equal access to the same information.
Kraken recently settled a dispute with the SEC over its staking program. The exchange was required to pay a $30 million fine and shut down its staking operations for failing to register the offer and sale of its “crypto asset staking-as-a-service program.”
SEC Criticized for Decision
The SEC’s decision to target crypto staking has been met with criticism from Commissioner Hester Peirce, who publicly rebuked the agency for the shutdown of Kraken’s staking service. Peirce argued that regulation by enforcement is not an efficient or fair way of regulating an emerging industry.
Coinbase’s executives are standing up for its staking services, arguing that it cannot be classified as a security. If threatened by regulation, the company is prepared to take the matter to court. The SEC’s decision to target crypto staking has been met with criticism from Commissioner Hester Peirce and has sparked discussions about the future of the industry.
