In response to the SEC’s February crackdown on Kraken’s staking program, Coinbase has submitted a “Petition for Rulemaking” arguing that staking should not be classified as securities. The 18-page document argues that staking is not a monolithic concept and that core staking services do not meet the criteria of the Howey test, which defines what constitutes a security.
Coinbase argues that staking is not an investment of money, as the opportunity cost of staking is not an investment. Users retain full authority over their assets, with the ability to unstake them, sell, hypothecate, vote, pledge, or otherwise dispose of them independently of the service provider. The rewards users receive are simply payments for services rendered, and core staking services entail ministerial maintenance and not managerial efforts in the sense of traditional investing.
The petition cites several historical precedents that can guide the SEC on the current regulatory work with crypto staking. These include the 1973 Committee on Special Investment Advisory Services, the SEC’s Regulation Fair Disclosure from 2000, and the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, from 2017. Coinbase urges regulators to consider the economic consequences of their actions on the digital asset ecosystem and take a different approach to the treatment of staking services.
Coinbase publicly distanced itself from Kraken’s staking program in February, with CEO Brian Armstrong expressing his readiness to defend the company’s position in court “if needed.” Despite the SEC’s actions, Coinbase has reiterated to customers that its staking services will continue and “may actually increase.”
Overall, Coinbase’s petition to the SEC on staking argues that the practice should not be universally labeled as securities. It provides a detailed argument based on historical precedents and highlights the economic consequences of regulatory actions on the digital asset ecosystem.
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