Coinbase CEO ‘Will Defend Staking in Court if Needed’

Coinbase, a U.S. cryptocurrency exchange, has defended its staking services following the Securities and Exchange Commission's enforcement action against rival exchange, Kraken.

Last week, the SEC fined Kraken $30 million for offering staking-as-a-service without registering it, which has raised concerns about the future of the practice. In response, Coinbase CEO Brian Armstrong tweeted that the company's staking services are not securities and promised to defend this in court if necessary.

Meanwhile, Coinbase's Chief Legal Officer, Paul Grewal, emphasized the differences between Coinbase's offering and Kraken's, stating that staking fails the Howey test, a tool used by the SEC to evaluate what constitutes a security. Grewal stated that staking is not an investment, but a payment for validation services provided to the blockchain, and the rewards are not a return on investment.

Grewal pointed out that the purpose of securities law is to address disparities in information, however, he noted that staking doesn't pose this issue as all participants in the process have equal access to information and validate transactions through the blockchain.

According to Grewal, staking doesn't meet the criteria set by the SEC to qualify as a security because the staker retains ownership of their coins and the rewards received are simply compensation for the validation services they provide to the blockchain, not a return on investment.

This viewpoint may not be well received in a market that frequently views staking rewards as returns, as seen in the SEC's enforcement action against Kraken for advertising its unregistered products with potential annual returns of up to 21%. Coinbase's own staking program also mentions rewards in the form of annual percentage yields (APY) for coins like Ethereum and Solana.