Right now, excluding staking on its own nodes, the main pool offering this service is the decentralized Lido, followed precisely by Coinbase, Kraken and Binance.Īs far as Lido is concerned, it is very difficult for the SEC to really intervene, since it is a decentralized platform, but as far as Coinbase, Kraken and Binance are concerned, it could. Such staking-as-a-service is provided by many intermediaries, including many exchanges such as Coinbase and Kraken. The problem would be for those who entrust their ETH to a third-party node for it to be used for Proof-of-Stake, receiving a financial return in return. Ethereum and other PoS cryptocurrenciesįrom this reasoning, it would seem to emerge that those staking ETH on their own node should take no risk. In order to be sold lawfully, they would have to apply for and receive approval from the SEC, and this is a scenario few considered likely. Therefore if some PoS-based cryptocurrencies, or some crypto staking services, do not pass the Howey test, to date they would be found to be sold illicitly. Such authority in the US is precisely the SEC. The key point is that securities in the U.S., as indeed in almost all other countries with developed financial markets, can only be offered on the open market with the approval of the authorities. However, those who instead entrust their tokens to third-party validators with the promise that they will validate the blocks obtaining a profit with which to pay a financial return on the tokens staked may actually be entering into an investment contract. In this particular case, those who are staking on their own node make profit by validating blocks, meaning not through the efforts of others. The Howey test was used in a case before the US Supreme Court to determine whether a transaction qualified as an “investment contract” or not.Īccording to the Howey Test, they are true investment contracts when there is an investment of money in a joint venture with a reasonable expectation of profits from the efforts of others. What are they and how do securities work? In particular, major staking services would not meet the criteria of the Howey test. In the petition, Coinbase focuses on how US securities law treats services related to block validation in PoS-based crypto protocols, arguing that staking is not a monolithic operation concept.Īccording to the exchange, some of the models in existence to date actually could fall under the definition of “investment contract offerings,” but others clearly do not. The action referred to in the petition is the one against Kraken, which forced the major US crypto exchange to stop providing its staking service to all US users. The petition sent yesterday is an impressive 18 pages long, and is a commentary by Coinbase in response to a recent SEC action, described as “surprising,” suggesting that the agency may consider some staking services as constituting an investment contract, and therefore a security. The petition: Coinbase asks the SEC to retract the definition of security token
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