Brian Armstrong sent out a Twitter thread on Feb. 8 warning that the Securities and Exchange Commission wants to ban retail consumers from staking cryptocurrencies.
Coinbase CEO Brian Armstrong said he's "hearing rumors" that the Securities and Exchange Commission is planning to ban U.S. consumers from staking cryptocurrency.
"I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen," Armstrong said. "Staking is not a security."
Staking is at the heart of all environmentally friendly Proof-of-Stake blockchains, which replace Bitcoin-style mining. With staking, participants lock up their crypto for a set period to help validate transactions on a blockchain. In return they get a share of the rewards earned.
"Staking is a really important innovation in crypto," Armstrong said. He added:
"It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints."
However, SEC chairman Gary Gensler suggested — but did not explicitly say — last year that Ethereum's changeover may have made Ether a security.
When staking crypto, he told a Senate hearing in September, "the investing public is anticipating profits based on the efforts of others."
That is key under the four-part definition of a security under the U.S. Supreme Court's Howey test: It holds that a security is (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit and (4) to be derived from the efforts of others.
Staking has become a huge business, and is a key part of decentralized finance (DeFi). The total value of all staked assets — including those staked by retail consumers — is $42 billion, according to Kraken-owned Staked's State of Staking report for Q1 2023. It brings in $3 billion annually, the report said. The average yield, it added, is 11.6%.
Arguing that such a ban would just drive staking offshore, Armstrong said, "We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules." He added:
"Regulation by enforcement doesn't work. It encourages companies to operate offshore, which is what happened with FTX."