Coinbase Files A Petition To The SEC, Argues That Staking Should Not Be Classified As Securities

Coinbase, a leading crypto exchange based in the US, has decided to clarify cryptocurrency staking, which regulators recently scrutinized. Their petition to the US SEC clarifies why staking should not be universally classified as securities.

Earlier in the week, Coinbase released an “Appeal for Rulemaking” document outlining their concerns about the treatment of services related to authenticating proof-of-stake (PoS) protocols under securities law.

The petition, which spans 18 pages, addresses these issues in detail. It was prompted by the SEC’s recent action against the staking program by Kraken in February.

The agency accused the exchange of violating the securities laws by failing to obtain the right permits for their SaaS program sale and offer (which they believe fell under securities).

Coinbase Maintain Its Stance

Coinbase’s petition emphasizes that staking should not be considered a uniform operational concept. According to the company, specific staking models may be eligible as investment contract provisions, but others do not.

Specifically, Coinbase highlights that most major staking services fail to satisfy Howey’s test criteria. The core staking service doesn’t require an investment of funds since the costs involved in staking do not qualify as an investment.

Instead, users temporarily give up their assets, not their funds, Coinbase further argued in its petition. Service providers and stakers lack a joint enterprise and any connection among stakers themselves.

Users maintain complete control of all their assets, being able to pledge, vote, and dispose of them in various ways without interference from service providers. In addition, Coinbase notes that major staking services do not meet the “anticipation of profit” level, as the rewards received are merely payments for rendered services.

The exchange further noted that primary staking services include ministerial upkeep instead of the managerial effort required in traditional investing. To assist the SEC in its current regulatory efforts regarding cryptocurrency staking, Coinbase referenced various precedents, which include the RFD by SEC in 2000.

Coinbase emphasizes the substantial economic impact that regulatory decisions could have on the virtual asset ecosystem. As a result, the company urged regulators to adopt an alternative approach to regulating staking services.

Following the February incident with Kraken, Coinbase made a public statement emphasizing that its staking programs were “essentially distinct” from Kraken’s. Brian Armstrong—Coinbase CEO, even indicated his willingness to uphold this argument in the court “if necessary.”

Coinbase has also reassured its customers that their staking services would proceed despite the SEC’s actions.