You may have noticed that the US Securities and Exchange Commission (SEC) intervened last month by closing the Kraken strike program in the United States. According to the SEC, Kraken’s staking program qualifies as an unregistered security and the platform should have at least registered with the regulator. Coinbase does not care about this and mainly points to the differences between its program and that of Kraken.
‘Strike reward comes from the protocol’
Coinbase believes that at no point does it take ownership of its users’ assets in its staking program. According to the SEC, this was indeed the case in the case of Kraken. “Your staked assets continue to earn rewards and you don’t have to do anything for that. That reward comes from the protocol, not from Coinbase,” said exchange platform CEO Brian Armstrong.
New email from Coinbase regarding staking:
“Your staked assets will continue earning rewards, no action is required… You earn rewards from the protocol, not Coinbase”
Coinbase basically telling the SEC to take a hike? pic.twitter.com/ckAAaZXsQb
— Psycho (@AltcoinPsycho) March 10, 2023
With this, Coinbase mainly wants to emphasize that it only provides a service. It merely facilitates the technical procedure involved in crypto staking and does not manage their users’ coins. In principle, the exchange is right, because the coins are tied up in the Proof-of-Stake contracts of the blockchains in question and not in Coinbase’s wallets.
“Coinbase is only a service provider that connects you, the validators in the network and the protocol. Users do not get a share of the staking reward that Coinbase itself receives.”
Gray area in terms of crypto regulations
Despite those words, there is no denying that Coinbase is currently in a gray area. In principle, the staking program of the listed exchange platform does not differ fundamentally from that of Kraken. In that regard, it is very possible that the SEC will soon go after Coinbase as well.
That would be a more than dramatic development for the industry and make Proof-of-Stake blockchains a lot less interesting for the general public. What makes them so interesting now is that you can grab a guaranteed return of a few percent in tokens on ethereum (ETH), for example.
If that is no longer possible, then a major advantage will be lost for Proof-of-Stake projects compared to Proof-of-Work projects such as bitcoin. In that sense, we are entering a very exciting period for the industry.