Coinbase CEO Brian Armstrong Ready to Defend Staking in Court if Necessary
Coinbase CEO Brian Armstrong has said the exchange's crypto staking services are not securities, adding that he is willing to defend this in court.
“Coinbase's staking services are not securities. We will happily defend this in court if needed,” Armstrong said in a Twitter post on Sunday. The post also links to a Coinbase blog that dives deep into crypto staking and why it is not a security under the US Securities Act, nor under the Howey test.
The Howey test, which comes from a 1946 Supreme Court case, is used by the SEC to determine whether an investment contract is a security. The test basically considers four elements: investment of money, common enterprise, reasonable expectation of profits, and efforts of others.
Coinbase argued that crypto staking does not meet any of the four prongs of Howey. In the first place, staking is not an investment because users don't give up their digital assets to get something else. They own exactly the same thing they did before and they always have the option to “unstake” their assets.
"Second, staking services do not meet the "common enterprise" prong of Howey because assets are staked on decentralized networks," the Coinbase blog said, adding that stakers validate transactions through a community of users, not a common enterprise.
Furthermore, staking does not meet the "reasonable expectation of profits'' element as rewards are not a return on investment - rather they are payments for validation services provided to the blockchain.
And finally, staking services use publicly-available software and computers to perform validation services. Therefore, staking does not pay rewards based on the "efforts of others" and thus it fails to meet the fourth element of the Howey test. Coinbase
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