Four reasons why the Coinbase Earn staking program, like other staking services, should not be subject to the Howey test, which is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a security is actively priced, is discussed in a published article Coinbase General Counsel Paul Grewal
Coinbase General Counsel Paul Grewal published an article in which he gave four reasons why the Coinbase Earn staking program, like other staking services, should not be subject to the Howey test, with which the US Securities and Exchange Commission (SEC) ) determines whether an asset is considered a security.Coinbase General Counsel Paul Grewal published an article arguing the reasons why the Coinbase Earn staking program, like other staking services, should not be subjected to the Howey test, which is used by the U.S. Securities and Exchange Commission (SEC) to determine whether an asset is considered a security. Coinbase Head of Legal Paul Gruell explains why staking services are not subject to US securities laws. If necessary, the exchange is ready to prove it in court.
First, staking is not an investment, says Grewell.. Staking clients always retain full ownership of their assets and can also unstake those assets according to the underlying protocol. Secondly, assets are placed in decentralized networks. Stakers validate transactions across the blockchain by interacting with the community rather than through a shared enterprise. In addition, staking rewards are determined by the protocol and not dependent on Coinbase’s actions.
Third, by staking, users do not expect to make a profit, Grewell wrote.. He explained that the reward is paid for the provision of validation services in the blockchain, and this is not a return on investment.. The reward is set by the blockchain protocol and does not depend on whether the client stakes the funds himself or through an intermediary such as Coinbase.
Finally, staking rewards are not paid based on the efforts made by other people.. Staking services are independent of entrepreneurial and governance factors that determine staking rewards. Which nodes should receive the reward and what is its amount is determined by the corresponding protocol. This means that service providers simply use open source software and computer hardware to provide validation services without taking any management action.. In fact, these are IT services, not investments, the lawyer concluded.
Coinbase CEO Brian Armstrong has confirmed that staking services are not related to securities, and the exchange is ready to prove it in court if necessary. Armstrong tweeted about the SEC’s growing interest in staking programs, believing that they may fall within its remit.
Coinbase’s staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023
The SEC recently sued marketplace Kraken, calling its staking service an unregistered securities offering.. As a result, Kraken was forced to shut down the service and pay a $30 million fine.