Executives at cryptocurrency exchange Coinbase are backing its cryptocurrency staking service, claiming they cannot be classified as securities and threatening to take the matter to U.S. courts.
Coinbase CEO Brian Armstrong tweeted that the company will "defend this in court when needed." It follows that cryptocurrency exchange Kraken reached an agreement with the SEC on February 10 to stop offering staking services or programs to clients in the country.
According to the SEC, Kraken failed to “register the offer and sale of its crypto asset staking-as-a-service program,” which the commission has now identified as securities. In addition to ceasing service, Kraken also agreed to pay $30 million in disgorgement, advance interest and civil penalties. Coinbase’s chief legal officer, Paul Grewal, weighed in on the issue in a blog post, claiming that “mortgages are not securities under U.S. securities law and do not meet the Howey test.”
Grewal believes that Staking does not meet the four elements of the Howey test: investment of money, common cause, reasonable profit expectations, and the efforts of others. “The Howey test comes from a 1946 Supreme Court case — whether that test makes sense for modern assets like cryptocurrencies is a separate discussion,” he wrote.
“The purpose of securities law is to correct information imbalances. But in staking there is no information imbalance because all participants are connected to the blockchain and are able to verify transactions through a community of users with equal access to the same information.”
The U.S. Securities and Exchange Commission’s decision on cryptocurrency staking has sparked criticism. In a statement titled “Kraken Down,” Commissioner Hester Peirce publicly blamed her own agency for shutting down Kraken’s staking service. Regulation through enforcement "is not an efficient or fair way to regulate a fledgling industry," according to Pierce.
