Brian Armstrong, the CEO of American cryptocurrency trading platform Coinbase Global Inc., has responded to threats by theUnited States Securities and Exchange Commissions (SEC) on crypto exchanges for their staking products.
According to a Tweet on February 12, Brian boastfully said the exchange’s staking services do not qualify as securities and he’s ready to defend his position in court if necessary. Additionally, the CEO also shared a post from Paul Grewal who is the exchange’s chief legal officer to buttress his position.
Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023
According to Paul, staking is not a security under the US Securities Act nor under the Howey test – a kind of parameter with which the regulator checks if an investment contract qualifies as a security. The test which stemmed from a 1946 Supreme Court case examines investment options under four elements which include the investment of money, common enterprise, reasonable expectation of profits, and efforts of others.
Interestingly, the crypto veteran argued that crypto staking does not meet any of these four requirements and should therefore not be considered a security.
Notably, the main aim of securities law is to work on the imbalances in information, but as far as staking is concerned, there is nothing like an imbalance in information as all users are connected to the blockchain. The users have the ability to validate transactions via a range of users that have access to the same information.
Furthermore, Paul argues that imposing the securities law on the product will prevent US consumers from having full access to the basic crypto services, thereby pushing these users to opt for unregulated offshore platforms, which is risky.
Staking Service and Regulations
Meanwhile early this month, Cardano (ADA) founder Charles Hoskinson proposed a regulatory model for staking which he believes is aligned with legal requirements. He suggested that operators in the crypto space should adopt the contingency staking model which leverages the Know-Your-Customer (KYC) procedures.
Staking and Regulation https://t.co/gEIuDzTUjj
— Charles Hoskinson (@IOHK_Charles) February 9, 2023
Unlike the current staking model which involves the delegates sending their transaction to the pool, the new contingency staking model will enable the transactions to be approved by both the delegates and the staking pool operator.
Recall that just recently, the regulator fined Kraken, a rival crypto trading platform for offering its staking-as-a-service products which it qualifies as security to clients in the country. The regulator was also reportedly investigating Paxos, the issuer of the Binance USD (BUSD) stablecoin.
