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On Thursday, February 9, The U.S. Securities and Exchange (SEC) Commission announced the shutdown of Kraken’s Crypto Asset Staking-As-A-Service Program. The SEC announced the shutdown on the premise that the program accounted for the sale of unregistered securities. The question in everyone’s mind is whether Coinbase is the next target for the SEC.
Pro-crypto SEC Commissioner Hester Peirce has voiced her concerns about the agency’s high-handed action and the lack of regulatory clarity.
A day earlier, Coinbase CEO Brian Armstrong had warned about SEC’s crackdown on crypto staking. Amstrong also called the SEC’s action a “terrible path” for the US. Since Coinbase also offers a crypto staking facility to its users, there’s a possibility of friction between the crypto exchange and the SEC.
The news has already sent tremors with the Coinbase (NASDAQ: COIN) stock correcting by more than 14% on Thursday. This has been the biggest single-day drop since July 2022.
Crypto staking has opened a new revenue stream for exchanges while allowing retail players to stake their digital assets. However, SEC’s recent actions could push investors to switch to decentralized protocols.
Coinbase Beleives to be Insulated from SEC’s Action
While the shutdown of Kraken’s crypto-staking platform is a warning signal for crypto exchanges, Coinbase isn’t worried much. In response to the Kraken crackdown, Coinbase’s chief legal officer, Paul Grewal said that their on-chain staking services are “fundamentally different” from Kraken’s.
He added that Coinbase’s staking rewards are entirely disclosed and determined by blockchain protocols. As a result, the stakes assets are always customers’ assets since there’s no transfer of titles. In a statement to Bloomberg, Grewal said:
“Coinbase’s staking program is not affected by today’s news. What’s clear from today’s announcement is that Kraken was essentially offering a yield product. Coinbase’s staking services are fundamentally different and are not securities.”
During the third quarter of 2022, Coinbase revenue from staking accounted for 11%, up from 8.5% in the second quarter. Coinbase is currently the second-largest depositor of Ether.
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