- Coinbase Chief Legal Officer Paul Grewal decried regulation by enforcement, calling staking “a safe and critical aspect of blockchain”.
- Grewal stated that staking does not fall under the category of security either by the rules of the US Securities Act or the Howey test.
- COIN price plunged by 30% in a week, invalidating part of its 142% rally since the beginning of the year.
Coinbase is the second biggest cryptocurrency exchange in the world in terms of trading volume processed daily. Even so, the Securities and Exchange Commission (SEC) has been at heads with the crypto company. However, the highest impact on Coinbase came this week following the regulators’ attack on staking services in the crypto space.
Coinbase says staking, not security
Coinbase Chief Legal Officer Paul Grewal, in a blog post on Friday, brought forward the reasons why staking in no way falls under the category of securities and why the SEC should lay off it. According to Grewal, staking stands apart from securities due to its nature of processing information. The executive noted,
“The purpose of securities law is to correct for imbalances in information. But there is no imbalance of information in staking, as all participants are connected on the blockchain and are able to validate transactions through a community of users with equal access to the same information.”
Grewal went on to state that attempting to impose securities law onto such a process would only drive US consumers to offshore, unregulated platforms. According to Coinbase, this is because staking does not fall under the Securities category either by US Securities Act or the Howey test.
The Howey test is used by SEC to determine the validity of an investment vehicle as a Security, which has been in place for nearly 77 years. Grewal further justified Coinbase standing on staking, saying,
“staking services do not pay rewards based on the “efforts of others.” Service providers’ staking services are not entrepreneurial, managerial, or a significant factor in whether customers receive staking rewards or the amount of rewards received.”
Coinbase further stated that sensible regulation in the United States is supported by the company. However, regulation by enforcement is not helpful, especially now that the SEC is potentially targeting staking.
The staking concerns arose over the last few days after the SEC fined crypto exchange Kraken $30 million and shut down its staking services offering due to lack of registration. This ensued panic in the crypto industry as consumers feared that the SEC might be coming after staking now.
COIN price goes down
This was reflected in Coinbase’s share price as well, following a nearly 30% decline in value in the last few days. Most of this shrink came in the last 48 hours as COIN fell by 15% to trade at $57.09.
COIN share price
Despite being a stock, COIN moved in tandem with the crypto market as the value of the share fluctuated accordingly. This led to the crypto exchange company registering a 142.44% rally in the span of a month since the beginning of the year. An increase in fear could significantly impact the value of the asset, resulting in further invalidation of its 142% recovery.