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Coinbase submits petition to SEC explaining that staking is not securities

The company continues its fight against the SEC’s position on crypto staking.

Coinbase, the US-based password exchange, decided to proactively communicate about password bets that have recently attracted the attention of regulators. The company's petition to the Securities and Exchange Commission (SEC) explains why stocks cannot be generally labeled as securities.

Coinbase released the rulemaking petition on March 20th. In an 18-page document, Coinbase focuses on how securities law treats services related to verifying proof of interest agreements. This is in response to SEC's crackdown on Kraken's betting plan in February, when SEC accused the exchange of "failing to register the provision and sale of its encrypted asset bet-as-a-service programme" and treating it as securities.

In the petition, Coinbase argues that the stake is not an iron-and-steel operating concept. While some existing models may fall within the definition of investment contract products, others clearly do not fit. The company stressed that, in particular, core betting services did not meet the standards of Howey testing.

The core betting service does not involve money investment because the opportunity cost of the bet is not investment-users are temporarily abandoning the alternative use of their assets, not money.

There is no common enterprise among oilers or between oilers and service providers. Users retain full access to their assets and are able to release, sell, mortgage, vote, pledge or otherwise dispose of their assets independently of the service provider.

According to Coinbase, core betting services also fail to meet "profit expectations" because users are rewarded only for services provided. Finally, core betting services require ministerial maintenance rather than traditional investment management efforts.

Coinbase lists several historical precedents that can guide SEC's current regulatory work on password bets, namely, the Special Investment Advisory Services Committee in 1973, the regulatory fair disclosure of SEC in 2000, and the investigation report under Section 21 (A): DAO of the Securities Exchange Act of 1934 from 2017 onwards.

The company alerted regulators to the significant economic consequences of its actions on the digital asset ecosystem and urged them to treat betting services differently.

Just after the collision with Kraken in February, Coinbase said publicly that its bet plan was fundamentally different from Kraken's, and Brian Armstrong, chief executive, said he was prepared to defend that position in court if necessary.

Coinbase reiterated to clients that despite SEC's action, its betting service would continue and "may actually increase".

by David Attlee
© 2023 WJB All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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