Crypto staking services in the United States are under threat. The Securities and Exchange Commission has made staking the latest enemy of traditional finance, but some companies intend to fight back.
On Feb. 13, Coinbase chief executive Brian Armstrong said that its staking services were not securities. “We will happily defend this in court if needed,” he added.
On Feb. 9, the SEC accused the Kraken exchange of selling unregistered securities through its staking-as-a-service product. Consequently, the firm was hit with a $30 million fine and ordered to shut down its staking services.
The move has rattled the crypto industry and companies that provide staking services in the U.S.
Coinbase: Staking Not Securities
The definition of a security is determined using what is called the Howey test. This relates to a supreme court case in 1946 determining whether a transaction qualified as an “investment contract.”
According to the SEC, most crypto assets and staking services constitute an investment contract. As a result, they should be registered and regulated the same way as company stocks and shares are, according to SEC chair Gary Gensler.
Coinbase disputes this claiming “staking is not a security under the US Securities Act nor under the Howey test.”
In a blog post released shortly after the Kraken enforcement, the company said staking fails to meet the four elements of the Howey test. These are an investment of money, common enterprise, reasonable expectation of profits, and efforts of others.
The company reiterated Armstrong’s words last week, concluding:
“Trying to superimpose securities law onto a process like staking doesn’t help consumers at all. Instead, unnecessarily aggressive mandates will prevent US consumers from accessing basic crypto services in the US and push users to offshore, unregulated platforms.”
Coinbase stock tanked 18.5% following the Kraken crackdown as fears mounted that the firm would be the next target for the SEC.
Furthermore, the regulator targeted stablecoin issuer Paxos over the weekend. It sent a Wells notice, a threat of legal action over the issuance of the world’s third-largest stablecoin, Binance USD (BUSD). According to the SEC, stablecoins are now securities as its war on crypto continues.
Lido DAO Raises Concerns
On Feb. 12, the industry’s largest staking provider Lido warned about the ramifications of the latest SEC crackdown.
Speaking to Bloomberg, Jacob Blish, the head of Lido DAO business development, said that staking providers face a new range of implications.
“The most disappointing thing is we as an industry keep getting asked for transparency, but then me as a US citizen, I get no transparency and how [regulator’s] decision-making process is going,”
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