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Previously, SEC Chairman Gary Gensler noted that assets that can be staked fall under securities based on the Howey test.
In a series of tweets, Coinbase CEO Brian Armstrong shared concerns he’s hearing rumors about SEC plans to ban crypto staking for retail customers. While the rumor source is unclear, Armstrong opined that such a decision would be terrible in the US.
Armstrong said:
“When it comes to financial services and Web3, it’s a matter of national security that these capabilities be built out in the US.”
According to Staked, the total value of staked assets in Q4 2022 was $42 billion. Likewise, total earned rewards from staking ran to $3 billion. While the figure comprises institutional and retail investors, it shows interest level in crypto staking. Armstrong believes such a regulation would only push crypto companies offshore, as it did for FTX.
Not Surprising
Judging by the body language of the SEC and Gary Gensler in the past, the rumor seems probable. Previously, Chairman Gary Gensler noted that assets that can be staked fall under securities based on the Howey test. He stated that the anticipation of profit based on the efforts of others by the investor makes assets that can be staked into securities.
Gensler quickly mentioned that he had no particular token in mind when he made his comment. Interestingly, while Ethereum allows staking, the Commodity Futures Trading Commission (CFTC) has designated it as a commodity.
What Banning Crypto Staking Could Mean for Coinbase and the Industry
In 2022, the exchange made over 10% of its income from crypto staking rewards. Should the rumors prove true, Coinbase may lose a chunk of its revenue. This is not surprising. Staking has always been an attractive lure for new entrants. A ban on crypto staking may cause disinterest and limit the adoption of cryptocurrencies in the United States.
Also, the Executive director of the Proof of Stake Alliance (POSA), Alison Mangiero, believes that a ban on \ crypto staking will affect America’s efforts to domesticate technological innovations. Mangiero believes banning staking services would amount to a lack of understanding about the nature of staking.
Mangiero said that “the existence of staking service providers allows everyday Americans to participate in staking, which democratizes network consensus and validation.” However it goes, it is clear that the friction between the crypto industry and regulators as the duo seeks to establish a safer market for investors.