Five US States Continue Legal Action Against Coinbase’s Staking Program
Despite the dismissal of the US Securities and Exchange Commission’s (SEC) case against Coinbase, five states – California, New Jersey, Maryland, Washington, and Wisconsin – are persisting with lawsuits against the cryptocurrency exchange’s staking services. The ongoing legal battles have resulted in barriers for users looking to earn rewards through the platform, with over $90 million in staking rewards missed out on by residents of California, New Jersey, Maryland, and Wisconsin since June 2023.
Four of the states – California, New Jersey, Maryland, and Wisconsin – have issued cease-and-desist orders against Coinbase, preventing the platform from offering staking services to new users within their jurisdictions. On the other hand, Washington state has an active lawsuit but has not imposed a ban on Coinbase’s staking activities.
The allegations against Coinbase’s staking services revolve around the claim that they constitute unregistered securities offerings. However, Coinbase has vehemently contested these accusations, arguing that staking services do not meet the legal definition of securities. Despite the SEC’s dismissal of the case against Coinbase in February, the legal battles with the five states continue.
User Impact and Lost Rewards
According to Coinbase’s vice president of legal, Paul VanGreck, the restrictions imposed by the states have led to residents missing out on significant staking rewards. VanGreck estimates that users in the affected states have collectively lost over $90 million in rewards since mid-2023. He criticized the emergency procedures used by the states to issue cease-and-desist orders, stating that such actions are typically reserved for cases of serious securities fraud, not routine staking activities.
VanGreck highlighted the impact of the legal actions on consumer choice and regulatory uncertainty in the digital asset industry. He emphasized Coinbase’s compliance with federal and state regulations, including registration with FinCEN as a money services business, holding state money-transmission licenses, and being publicly traded in the US.
Additionally, Coinbase has a security commitment in place to indemnify users for losses in the event of a staking failure caused by the platform. VanGreck argued that the ongoing litigation by the five states goes against the trend of regulatory clarity in the digital asset space, especially as efforts are underway in Congress to establish a comprehensive framework for digital assets.
Coinbase has pledged to defend user access to staking services and will continue to contest the remaining lawsuits filed by the five states. VanGreck stressed that courts are not the appropriate venue to decide on staking policy and that elected officials should be responsible for defining the legal status of staking services.