Coinbase CEO addresses rumors that US SEC might ban crypto staking

Updated: 09 February 2023

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Brian Armstrong, the CEO of the leading US crypto exchange, Coinbase, recently shared a rumor on Twitter that, if true, would have quite a negative impact on the American crypto community. The rumor says that the US Securities and Exchange Commission (SEC) might be planning to ban crypto staking for retail investors.

Brian Armstrong addresses the rumors

Crypto staking has been an extremely popular method of ensuring passive income from digital assets for years now. More than that, now that Ethereum has switched to Proof of Stake, staking is also a way to become one of the network’s validators. If staking gets banned, however, that would mean that Ethereum would lose all of its US-based validators, while the stakers would not be able to use this method to earn passively from crypto.

“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 in the first of several tweets addressing the matter.

1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. 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.

— Brian Armstrong (@brian_armstrong) February 8, 2023

He continued by saying that staking is an important innovation in the world of cryptocurrency and that it brought numerous positive improvements to the crypto space. Some examples include increased security, scalability, and reduced carbon footprints. He also insisted that staking is not a security and that new technologies must be encouraged to grow in the country.

4/ We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules. When it comes to financial services and web3, it's a matter of national security that these capabilities be built out in the U.S.

— Brian Armstrong (@brian_armstrong) February 8, 2023

He also warned the US authorities that regulation by enforcement would not work and that it was this kind of thinking that encouraged US firms to move out of the country and operate offshore. This is what happened with the FTX exchange, and the consequences of that are still being felt.

US SEC has been targeting staking for some time

So far, the SEC did not address Armstrong’s claims. However, while these suspicions might come as a surprise to some — the fact is that the SEC chairman, Gary Gensler, did previously say that digital assets that allow staking might be classified as securities. This leads to a conflict, as Ethereum is now a staking asset, while the SEC’s sister regulator, the CFTC, previously cleared the asset as a non-security, just like Bitcoin.

At this point, the amount of money that is staked by US crypto users is quite significant. The value of the assets staked as of Q4 2022 was at around $42 billion, while annual staking rewards sit at $3 billion. The figure does not only include retail investors, but their contribution to staking is still quite large.

The executive director of the POSA (Proof of Stake Alliance), Alison Mangiero, also commented on the matter, stating that her organization is strongly against any assertation that staking is an unregistered security. It is something that gets misconstrued with unrelated activities, such as lending, according to Mangiero, but in the end, stalking is fundamentally a way for anyone to join in providing security for PoS networks.

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