Coinbase, one of the largest publicly traded cryptocurrency exchanges, has submitted an 18-page document to the US Securities and Exchange Commission (SEC) titled the “Petition for Rulemaking.”
The purpose of the document is to persuade US regulators that staking should not be subject to the same regulatory framework as securities. Staking is a service offered by many cryptocurrency exchanges and digital asset providers, where cryptocurrency holders can receive rewards for staking their digital assets with blockchain validators. The rewards typically come in the form of newly mined cryptocurrencies, but holders lose control over their original holdings until they decide to unstake them.
The SEC has been examining staking recently and argues that some staked tokens bear similarities to securities and therefore should be subject to the same regulations. However, Coinbase has a different perspective and contends that staking is a complex concept that cannot be treated as a single entity. Although some staking models may meet the criteria for investment contracts, others do not. Coinbase maintains that fundamental staking services do not fit within the SEC’s Howey test parameters for determining whether an asset constitutes a security.
Coinbase warns that getting the regulation wrong could result in innovation moving offshore to jurisdictions with more appropriate rules. The company highlights the US’s competition with other countries, such as the EU, UK, Hong Kong, Singapore, and the UAE, which are establishing regulatory frameworks for cryptocurrencies. Letting critical infrastructure migrate to other jurisdictions because the rules in the US are inappropriate is unnecessary, the company says.