On Monday (March 20), Coinbase, a leading U.S.-based cryptocurrency exchange, submitted a petition to the U.S. Securities and Exchange Commission (SEC) requesting a reevaluation of the notion that staking services should be uniformly considered securities.
The petition follows a recent SEC settlement with Kraken, a cryptocurrency exchange, regarding its staking services, which the SEC claims constitute investment contracts and, therefore, securities offerings that require registration.
In its petition, Coinbase argues that the SEC’s new policy position and legal determination, announced through a single enforcement action rather than formal guidance, needs to generate more certainty for market participants. The exchange emphasizes that staking services are not monolithic, with various existing models. While some might fall under the investment contract category, core staking services, as described in the petition, do not fit the definition of securities offerings based on the Supreme Court case, SEC v. W. J. Howey Co.
Coinbase contends that core staking services neither meet the legal requirements of the Howey test nor present the risks that federal securities laws aim to mitigate. The exchange encourages the SEC to provide a viable registration process for staking services that constitute investment contracts and clarify its views on staking services. It also urges the SEC to seek public input on those views.
Coinbase stresses the importance of determining the correct regulatory treatment for staking services, as consensus mechanisms are crucial to the digital asset ecosystem. Inappropriately applying securities laws to transaction validation processes could hinder financial innovation and negatively impact the millions of Americans who own crypto or believe the current financial system needs an update.
The exchange warns that regulatory missteps could lead to innovation migrating to jurisdictions with more transparent regulatory frameworks, such as the EU, UK, Hong Kong, Singapore, and the UAE. Coinbase believes constructive engagement with the SEC on these issues is possible without compromising protections, thereby preserving U.S. innovation and maintaining the country’s capital markets as the global gold standard.