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Coinbase CEO Vows To Defend Staking Services In US Court

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Coinbase CEO, Brian Armstrong, has taken to Twitter to defend the company’s staking services in response to rumors that the SEC is looking to eliminate staking in the U.S. for retail customers.

Coinbase CEO Vows To Defend Staking Services In US Court

On Thursday afternoon, the SEC announced that crypto exchange Kraken agreed to pay a $30 million fine for not registering its offering and selling its crypto asset staking-as-a-service program. A day before, Coinbase CEO Brian Armstrong warned on Twitter that he’d heard the SEC would like to eliminate crypto staking in the U.S. for retail customers.

Armstrong expressed his stance on the matter through a tweet, stating that Coinbase’s staking services do not qualify as securities, and the company is prepared to defend this stance in a court of law if necessary.

SEC Chair Gary Gensler stated on Friday during an appearance on CNBC’s “Squawk Box” that this action should serve as a warning to all in the crypto marketplace. He mentioned that regardless of whether a company refers to its offerings as lend, earn, yield, or provides an annual percentage yield, if a platform takes customer tokens and transfers them to its platform, it has control over those tokens.

In a blog post, Paul Grewal, the Chief Legal Officer at Coinbase, expressed his views on the matter. He stated that, in his opinion, staking does not fall under the purview of the US Securities Act or meet the criteria of the Howey test.

Grewal put forth the argument that staking fails to fulfill the requirements of the Howey test, which consist of four key elements: investment of money, shared enterprise, an expectation of profit, and dependence on the efforts of others.

SEC Could Target All Staking Platforms

Assets staked on proof-of-stake networks, such as Ethereum, play a crucial role in maintaining the smooth functioning of the network. Staking is evidence of a validator’s commitment to the network, as they are responsible for storing data and processing new transactions. As a reward for their participation, validators can receive compensation; however, if they are inactive or engage in unacceptable behavior, they may forfeit a portion of their staked assets.

There is widespread speculation that the SEC could target all staking platforms. However, the potential impact on Coinbase would be minimal, as only a minimal portion of its revenue is generated from staking services. In a recent report, John Todaro of Needham stated that staking only accounts for less than 3% of Coinbase’s revenue after considering customer rewards.

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