Crypto Staking Services in the US under threat of SEC intervention
Crypto staking services in the US are under threat. The Securities and Exchange Commission has made strikes the latest enemy of traditional finance, but some companies intend to fight back.
On February 13, Coinbase CEO Brian Armstrong said the staking services were not securities. “We would be happy to defend this in court if necessary,” he added.
On February 9, the SEC accused the Kraken exchange of selling unregistered securities through its staking-as-a-service product. Consequently, the firm was hit with a $30 million fine and ordered to shut down its betting services.
The move has rattled the crypto industry and companies that offer betting services in the US
Coin base: Stake not securities
The definition of a security is determined using what is known as the Howey test. This concerns a Supreme Court case in 1946 that decided whether a transaction qualified as an “investment contract.”
According to the SEC, most crypto assets and betting services constitute an investment contract. As a result, they should be registered and regulated in the same way as company stocks and shares are, according to SEC Chairman Gary Gensler.
Coinbase disputes this, arguing that “stakes are not a security under the US Securities Act or under the Howey test.”
In a blog post released shortly after the Kraken enforcement action, the company said staking does not meet the four elements of the Howey test. This is an investment of money, joint venture, reasonable expectations of profit and the efforts of others.
The company echoed Armstrong’s words last week, concluding:
“Trying to impose securities laws on a process like striking does not help consumers at all. Instead, unnecessarily aggressive mandates will prevent US consumers from accessing basic crypto services in the US and push users to offshore, unregulated platforms.”
Coinbase shares fell 18.5% after the Kraken crash as fears grew that the firm would be the next target of the SEC.
Furthermore, the regulator targeted stablecoin issuer Paxos over the weekend. It sent a Wells notice, a threat of legal action over the issuance of the world’s third largest stablecoin, Binance USD (BUSD). According to the SEC, stablecoins are now securities as the war against crypto continues.
Lido DAO raises concerns
On 12 February, the industry’s largest betting provider Lido warned of the consequences of the latest SEC crackdown.
Speaking to Bloomberg, Jacob Blish, Lido DAO’s head of business development, said staking providers face a new set of implications.
He added:
“The most disappointing thing is that we as an industry are constantly asked for transparency, but then as an American citizen I get no transparency and how [regulator’s] the decision-making process is underway”
Disclaimer
BeInCrypto has reached out to the company or person involved in the story for an official statement on the latest development, but has yet to hear back.
