Brian Armstrong said the exchange will "happily defend" its Coinbase Earn staking service in court days after competitor Kraken paid a $30 million fine and ended its program.
Brian Armstrong has vowed to defend his exchange's crypto staking program Coinbase Earn in court if necessary.
The comments come in the wake of Securities and Exchange Commission's announcement of Thursday that competitor Kraken would pay a $30 million penalty and shutter its staking-as-a-service program.
"Coinbase's staking services are not securities," Armstrong tweeted on Feb. 13. "We will happily defend this in court if needed."
So far, only one company has pushed back against the SEC hard enough to take it to court. That is Ripple, which is fighting a civil suit alleging it sold unregistered securities in the form of XRP tokens.
Not a Security
On Feb. 8, a day before the Kraken settlement broke, Armstrong said he was "hearing rumors" that staking could be banned in the U.S. That would be, he said, a "terrible" mistake that would simply drive the business offshore.
Armstrong's Monday tweet pointed to a post-Kraken blog entry by Coinbase chief legal officer Paul Grewal laying out why the company believes it can take on the SEC successfully.
"Trying to superimpose securities law onto a process like staking doesn't help consumers at all," Grewal said. He then ran through why he believes staking services — at least the way Coinbase does it — do not meet any of the four criteria that define a security under the U.S. Supreme Court's Howey test.
Among other things, what its customers are getting is technical help in setting up what is fundamentally a payment for service rendered rather than an investment, Grewal argued.
Stakers lock funds up with Proof-of-Stake blockchains, getting a fixed percentage of the fees earned with each new block.
However, Grewal also said that it was "clear from [the SEC's] announcement that Kraken was essentially offering a yield product." He added:
"Coinbase's staking services are fundamentally different and are not securities. For example, our customers' rewards depend on the rewards paid by the protocol, and commissions we disclose."
Not Going to Budge
SEC chairman Gary Gensler has made his feelings on the matter very clear: Last year, he hinted that when Ethereum switched from a Bitcoin-style mining consensus mechanism to staking, it turned its ether token into a security.
Speaking of the Kraken settlement, Gensler told CNBC on Feb. 10 that the crypto industry is "choosing" not to follow the law.
But he also pushed back against an argument that Armstrong and Grewal made — supported by one of Gensler's own SEC commissioners, Hester Pierce — that the Kraken settlement was just another example of regulation by enforcement. Speaking on CNBC on Feb. 10, Gensler said:
"When a company is breaking the law, is non-compliant, we do use enforcement. Where there are authorities that Congress has given us, we do write regulations… If you look at the history of insider trading, a lot of what we've done around insider trading, starting decades ago, was through enforcement actions. So this is not something new at all."
