© Reuters Coinbase Objects SEC: Core Staking Is Software Service, Not Security
- Coinbase (NASDAQ:) explains to the SEC why core staking services are not securities offerings.
- The letter argued that staking services are only software services.
- Coinbase CLO said the SEC could follow other paths without leading by enforcement.
On Tuesday, Paul Grewal, the Chief Legal Officer (CLO) of the Coinbase crypto exchange, announced that the firm had submitted a comment letter to the US Securities and Exchange Commission (SEC) explaining why core staking services are not securities offerings.
Grewal argued that core staking services are not an offering of securities but only software services. In his words, “paying someone a fee to take a chore off your hands doesn’t make something a securities transaction.”
Today, @Coinbase submitted a comment letter to our July 2022 SEC petition for rulemaking. We explain why core staking services–those that serve as a pass-through for rewards–are not securities offerings. https://t.co/Xzz21B9AkS 1/25
— paulgrewal.eth (@iampaulgrewal) March 21, 2023
Furthermore, the Coinbase CLO contended for a statement issued by the SEC last month during the regulatory settlement of the Kraken crypto exchange. The read statement:
Today’s action should make it clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.
In Grewal’s view, the SEC’s pronouncement was at odds with the settlement itself, given that it does not implicate any staking services other than the ones Kraken previously offered. “That is why the letter we filed today asked the SEC to clarify that core staking services are not securities,” the legal officer tweeted.
He further explained that core staking services failed every prong of the Howey test. According to the test, an investment must have some financial risk with a joint enterprise and an expectation of profit, and the profits must come from the managerial or entrepreneurial efforts of others.
Grewal clarified that staking rewards are not profit but service fees determined by the protocol are paid to the asset owner as compensation. The CLO noted that the SEC could follow many paths rather than leading with enforcement.
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