Coinbase presented a petition to the SEC that underlines why staking cannot be classified as securities in every circumstance.
The cryptocurrency exchange Coinbase seems to have decided to engage proactively in crypto staking, which has recently drawn the authorities’ attention. This indicates that the corporation will not relinquish its battle against the SEC’s stance on staking cryptocurrencies, as the firm had revealed intentions to defend the services.
On March 20, Coinbase announced the publication of a “Petition for Rulemaking” document. The company devoted a paper of 18 pages to discussing how the securities legislation considers services connected to certifying proof-of-stake procedures.
How Coinbase got involved in the SEC/Kraken staking saga
The recent petition is drawn back to February as a reaction to the SEC’s crackdown on Kraken’s staking program.
At the time, the SEC charged the exchange with failing to register the offer and sale of their cryptocurrency staking-as-a-service program, which it considered a security.
Immediately after the collision with Kraken in February, Coinbase officially separated its staking programs as being “fundamentally different” from Kraken’s, and the CEO of the business, Brian Armstrong, expressed his preparedness in defending this position in court “if required.”
Coinbase assured its clients once again that its staking services would continue and “may actually expand” in the future, despite the moves taken by the SEC.
Coinbase thinks primary staking meets the Howey test
Coinbase contends in the petition that staking is not a one, all-encompassing business model notion. While some of the current models may be classified as investment contract offers, it’s very evident that others cannot.
The corporation places a strong emphasis on the fact that the primary staking services are the ones that need to satisfy the requirements of the Howey test.
Since the opportunity cost of staking is not an investment, core staking services only require users to commit financially. Instead, users are asked to temporarily forego an alternate use of their assets rather than money to participate in staking.
Because users’ rewards are just compensation for services delivered, Coinbase believes that essential staking services do not fulfil the “expectation of profit” criteria either. In conclusion, the essential staking services consist of ministerial maintenance rather than conventional management efforts. This is because traditional investment is a kind of traditional investing.
Coinbase cites several historical precedents that can guide the SEC on the current regulatory work with cryptocurrency staking.
These historical precedents include the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000, and the 2017 Report of Investigative process Under Section 21(a) of the Securities Exchange Act of 1934.
Coinbase believes these historical precedents can help guide the SEC’s work.