All eyes in the crypto community have been on the SEC and its decision to pursue certain crypto staking offerings in the States.
After Kraken, many believe Coinbase will be next to have to settle with the regulator, which is why the largest US-based exchange decided to address the matter.
Our Products Are Not Securities: Coinbase
The exchange’s Chief Legal Officer, Paul Grewal, asserted in the blog post that the company’s staking services do not meet the Howey test criteria, which is why they should not be considered securities. The SEC uses four characteristics to determine whether an investment asset falls under Howey’s securities category – efforts of other parties, investment of money, expectations of profit, and common enterprise.
According to Grewal, crypto staking, and Coinbase’s product, in particular, meet none of those. It’s not an investment of money because the customers retain full ownership of the crypto funds, and “they own exactly the same thing they did before.”
As crypto assets are staked on decentralized platforms, Grewal argued that they do not meet the common enterprise element either. And, because staking rewards “are simply payments for validation services provided to the blockchain, not a return on investment,” they are out of the reasonable expectation of profit criteria.
Lastly, these rewards are not based on the efforts of others since staking providers’ services are not “entrepreneurial, managerial, or a significant factor” in whether clients receive them.
Consequently, Coinbase’s exec highlighted the need for appropriate regulations that will not halt the sector’s development. If the US fails to do so, the country risks losing users to offshore jurisdictions.
“… [T]here is no imbalance of information in staking, as all participants are connected on the blockchain and are able to validate transactions through a community of users with equal access to the same information.”
COIN Slumps Hard
In the wake of the SEC going after Kraken and rumors spreading that the crackdown could further intensify for local companies, the shares of Coinbase went into a freefall. They dumped by 14% in one trading session, the largest daily price decline in COIN’s history.
On a weekly scale, the stocks are down by roughly 22% and trade under $60. They charted an all-time low earlier this year at around $32 before they spiked back to $80 amid bitcoin’s recovery.