Coinbase Says It 'Will Happily Defend' Stand That Staking Is Not A Security Amid SEC Crypto Shakedown

Coinbase, the publicly listed American company that operates a centralized cryptocurrency exchange platform, stood by its position that crypto staking is not a security, with the company's CEO assuring customers that they will "happily defend' their position in court.

The U.S. Securities and Exchange Commission (SEC) has started its shakedown in the cryptocurrency space over the past weeks and Kraken, the fourth largest CEX in the world in terms of market capitalization, got a taste of this regulation last week when the financial regulator alleged that its crypto staking service was an illegal sale of securities.

Kraken settled the issue with the SEC, which resulted in the immediate discontinuation of its crypto staking service for its U.S. customers and the payment of a $30 million fine in disgorgement, civil penalties and prejudgment interest.

The SEC's move could have a sweeping impact on other major cryptocurrency exchange platforms like Coinbase, which is currently the second-largest CEX in the world by trading volume.

Coinbase CEO Brian Armstrong assured their customers that they will "happily defend" their crypto staking service in court if needed.

"We will keep fighting for economic freedom (our mission at Coinbase). Some days being the most trusted brand in crypto means protecting our customers from government overreach," Armstrong said in a tweet last week, following SEC's ruling on Kraken's case.

"Staking is not a security under the US Securities Act, nor under the Howey test. Trying to superimpose securities law onto a process like staking doesn't help consumers at all and instead imposes unnecessarily aggressive mandates that will prevent US consumers from accessing basic crypto services and push users to offshore, unregulated platforms," Coinbase said in a blog post.

According to Coinbase, "staking services do not constitute an investment of money, even under an expanded definition that includes any "specific consideration" that is given up "in return for a separable financial interest."

It further explained that "when a customer asks us to stake some of their crypto, they aren't giving up one thing to get something else – they own exactly the same thing they did before," noting that "staking customers retain full ownership of their assets at all times, as well as the right to 'unstake' those assets consistent with the underlying protocol."

For the publicly traded company, "staking services do not meet the 'common enterprise' prong of Howey because assets are staked on decentralized networks. Stakers are only connected by blockchain technology and they validate transactions through a community of users, not a common enterprise."

It also argued that "staking services fail to meet Howey's 'reasonable expectation of profits element and that it "does not pay rewards based on the 'efforts of others.'"

Aside from Kraken, a new report claimed that the SEC has issued the stablecoin issuer Paxos a Wells Notice, which the U.S. regulator uses to notify the concerned party of the planned enforcement of an action, alleging that Binance USD issued by the company is an unregistered security.

The New York Department of Financial Services (NYDFS) has reportedly ordered Paxos to stop minting and issuing the dollar-pegged stablecoin BUSD.