Staking cannot be classified as securities in all circumstances, according to Coinbase’s petition to the SEC.
In response to recent attention from authorities, cryptocurrency exchange Coinbase has taken a proactive approach to crypto staking. Having indicated intentions to defend the services, this shows that the company will not relinquish its fight against the SEC’s stance on staking cryptocurrencies.
A “Petition for Rulemaking” document was published by Coinbase on March 20. The company discussed how securities legislation considers services related to certifying proof-of-stake procedures in an 18-page paper.
What Coinbase had to do with the SEC/Kraken staking saga
In response to the SEC’s crackdown on Kraken’s stake program, the petition dates back to February. The SEC charged the exchange at the time with failing to register the offer and sale of their cryptocurrency staking-as-a-service program, which it deemed security.
Immediately following the February collision with Kraken, Coinbase officially separated its staking programs as “fundamentally different” from Kraken’s, and the company’s CEO, Brian Armstrong, stated his willingness to defend this position in court “if required.”
Notwithstanding the SEC’s actions, Coinbase assured its customers that its staking services will remain and “may actually expand” in the future.
Coinbase believes primary staking passes the Howey test
In the petition, Coinbase claims that staking is not a single, all-encompassing business model concept. While some current models can clearly be classified as investment contract offers, others clearly cannot.
The corporation places a strong emphasis on the fact that the primary staking services must meet the Howey test requirements.
Core staking services only require users to commit financially because the opportunity cost of staking is not an investment. Users are instead asked to temporarily forego another use of their assets rather than money in order to participate in staking.
Coinbase believes that essential staking services do not meet the “expectation of profit” criteria because user rewards are simply compensation for services rendered. Finally, the essential staking services are ministerial maintenance rather than traditional management efforts. This is due to the fact that traditional investment is a type of traditional investment.
Coinbase cites a number of historical precedents that the SEC can use to guide its current regulatory work with cryptocurrency staking.
Some historical examples include the 2000 SEC Regulation Fair Disclosure, the 1973 Committee on Special Investment Advice Services, and the 2017 Report of Investigation Process. in accordance with the Securities Exchange Act of 1934 Section 21(a). These earlier examples, according to Coinbase, can assist direct the SEC’s investigation.