High Stakes Litigation: Time to End the War on Staking

We’ve come a long way since June 2023. Back then, the SEC and ten states sued Coinbase, alleging that our staking services were securities. Several of those states went even further by issuing cease-and-desist orders that immediately prevented Coinbase—and only Coinbase—from staking new assets for users. These orders are typically reserved for emergency situations, including combating serious securities fraud – like an ongoing Ponzi scheme. They were never intended for routine products like Coinbase’s staking services, which are not securities at all. In fact, no Coinbase user has ever lost money through our staking services. From the start, we knew the SEC and these states were wrong on both the facts and the law.  We pledged to vigorously defend our users and the broader industry. True to our word, we fought tooth-and-nail in court while also educating policymakers nationwide about the benefits of digital assets and staking. We’re now seeing the fruits of those efforts. In February, the SEC dismissed its lawsuit against Coinbase with prejudice. And over the past month, five of the states that had followed the SEC’s lead—Illinois, Kentucky, South Carolina, Vermont, and Alabama—also agreed to drop their cases. As a result, residents in Beaufort, South Carolina can now earn the same staking rewards as those in Beaufort, North Carolina. While we celebrate these wins, actions in California, New Jersey, Maryland, Washington, and Wisconsin continue to harm residents in those states. All but one (Washington) are enforcing cease-and-desist orders that have already cost residents tens of millions of dollars in missed staking rewards, while limiting consumer choice and increasing regulatory uncertainty. It’s time for these states to catch up with the SEC—and nearly every other state—and drop their unfounded cases.  What is Staking? Staking is the process of participating in transaction validation on a proof-of-stake (PoS) blockchain by temporarily locking up a certain amount of cryptocurrency. This supports the network’s operations, including by validating transactions and securing the blockchain. In return, participants (known as stakers) earn rewards, usually in the form of additional tokens.  Staking helps build and protect the internet of the future – and lets those who secure the network earn tokens for their efforts. But it often requires technical know-how. Coinbase helps make staking simple and convenient by offering staking-as-a-service: technology infrastructure that enables users to participate securely without the complexity.  Coinbase’s Staking Services  Coinbase is the most trusted digital assets platform – and the only one publicly traded in the United States. That means we have audited financials, and quarterly and annual disclosures. We are also subject to extensive federal and state regulations.  At the federal level, we are registered as a money services business with FinCEN (a bureau of the U.S. Treasury), and comply with anti-money laundering and know-your-customer regulations. At the state level, we hold 46 state money-transmission licenses and are subject to a variety of rules, including consumer-protection regulations. Our 400+ team of compliance, legal, and investigative professionals work tirelessly to ensure Coinbase remains the most secure crypto platform in the world. No one takes the security of your digital assets more seriously than we do.   Our safety record speaks for itself: no user has ever lost money using Coinbase’s staking services. And in the unlikely event our actions did cause a staking loss, we have committed to indemnify our users. We stand behind our staking service – and put our money where our mouth is. Singling out Coinbase Harms Consumers Despite Coinbase’s strong safety record—and despite the SEC’s decision to drop its case—five states (California, New Jersey, Maryland, Washington, and Wisconsin) are still claiming that our staking services are unregistered securities. And four of these states continue to enforce cease-and-desist orders blocking Coinbase from offering staking services to residents. Notably, these actions target only Coinbase – not any other staking services provider.  These holdout states are wrong on the law. Coinbase’s staking services are not securities, and the SEC dismissed its case on this point with prejudice. Forty other states have never tried to block our staking services, and five that once did—Illinois, Kentucky, South Carolina, Vermont, and Alabama—have now dropped their claims.  To be clear, Coinbase stands ready to challenge and defeat these remaining actions in court. But in the meantime, the holdout states are harming their own residents by cutting off access to services that others across the country—and even residents of their own states using other platforms—are free to use.   That is especially so in California, New Jersey, Maryland, and Wisconsin, where residents have missed out on an estimated $90M+ in staking rewards since June 2023 due to their states’ cease-and-desist orders. That number will keep growing as long as these bans remain in place. Even worse, by singling out Coinbase, these holdout states are arbitrarily picking winners and losers. That’s the job of consumers, not state bureaucrats. Their actions not only deprive consumers of competition and choice, but also push them towards potentially less regulated (or unregulated) staking platforms – some of which lack the consumer protections, public disclosures, and regulatory oversight that Coinbase maintains. If these states wish to protect their residents, targeting Coinbase is self-defeating. Prohibiting Coinbase’s Staking Services Creates Regulatory Uncertainty  Ultimately, staking policy should come from elected officials, not courts.  After years of asking for clear rules of the road, we are finally seeing progress. Members of Congress from both sides of the aisle are working to pass a comprehensive framework for digital assets. Regulators are also acting. The White House released an Executive Order to protect and promote the ability of individuals to participate in staking, and the SEC created a “Crypto Task Force” to address staking, among other topics. To create space for that regulatory framework to develop, the SEC and several states have abandoned their lawsuits against Coinbase’s staking services.  Against this backdrop, continued litigation by the holdout states is more indefensible than ever. These lawsuits don’t protect consumers – they confuse them and expose them to greater risk.   What’s next? We fought – and we won. But we’re not done. We hope California, New Jersey, Maryland, Washington, and Wisconsin will see the light. They should join the SEC and the other 45 states by ending their misguided legal actions. But if they don’t, we’ll keep fighting for our users. You can help, too. We’re closer than ever to a legal framework that allows digital assets to flourish in the U.S., but we still need the crypto community to come together. If you want to defend staking, we encourage you to join Stand with Crypto and make your voice heard.  Stay tuned on this blog and Coinbase’s website for updates and more specific ways to get involved. 

The stakes couldn’t be higher.