SEC claims Coinbase's staking service is an investment contract in lawsuit

Quick Take

  • Staking is at the heart of the SEC’s lawsuit against crypto exchange Coinbase.

The U.S. Securities and Exchange Commission honed in on Coinbase's staking service in its lawsuit, alleging that the offering amounts to an investment contract under American law — and one the exchange failed to register.

That staking would factor heavily into the SEC lawsuit is unsurprising, given the Wells notice Coinbase received this spring and past comments from SEC chair Gary Gensler about staking services, alongside similar action against Kraken.

Gensler said this morning that "Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.” Further, the SEC alleges that the tokens offered via the service are themselves securities, as The Block reported. 

In arguing that Coinbase's service is an investment contract, the complaint discusses "benefits that may not be available to those investors if they were to stake crypto assets on their own" and highlights marketing language the SEC says points to investment opportunities via the service. 

Today's action has a U.S. state dimension as well.

The Alabama Securities Commission issued a show-cause order to Coinbase in conjunction with nine other state regulators. The show-cause order focuses on Coinbase's staking service and "gives Coinbase 28 days to show cause why they should not be directed to cease and desist from selling unregistered securities in Alabama."

The statement notes that "the ASC action does not prohibit Coinbase from offering staking as a service, so long as it complies with Alabama's laws."

Kraken redux?

The situation echoes the $30 million settlement struck earlier this year between the SEC and crypto exchange Kraken.

Similarly, the SEC accused Kraken of offering unregistered securities. Kraken neither admitted nor denied the findings, but agreed to stop offering on-chain staking to U.S. customers.

“Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection," Gensler said at the time. 

Still, the settlement established that the SEC was turning its attention to staking within the crypto exchange space. 

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