Coinbase Earn still risks being labeled as security, warns Berenberg’s analyst Coinbase Earn still risks being labeled as security, warns Berenberg’s analyst
Berenberg's analyst argued that Coinbase staking pause in four US states highlights the regulatory risk associated with the product.
2 min read
Updated: Jul. 18, 2023 at 10:48 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Coinbase Earn program is at risk of being labelled securities, according to investment bank Berenberg’s July 17 research note shared with CryptoSlate.
Mark Palmer, the bank’s senior equity research analyst, wrote that Judge Analisa Torres ruling concerning Ripple’s XRP security status provides fodder for classifying Coinbase Earn as a security.
On June 13, Judge Torres ruled that XRP was not a security in itself but could become a security when used in certain ways, such as selling to institutions. Considering this, Palmer argued:
“We believe Coinbase Earn, the securitized product through which COIN offers staking rewards to retail customers, appears particularly vulnerable to being defined as a security within the context of the judge’s ruling.”
Coinbase staking pause highlights regulatory risk
The equity analyst further explained that Coinbase staking pause in four U.S. states highlights the regulatory risks attached to the product.
In June, the Security and Exchange Commission (SEC) filed a lawsuit against the crypto exchange, alleging that its staking program violated federal securities law. Following the SEC’s allegations, ten U.S. states, including California, New Jersey, South Carolina, Alabama, and others, filed similar charges against the firm.
Last week, Coinbase said it would stop its staking services to retail clients in four states in compliance with the local regulators.
Palmer stated that the SEC lawsuit against Coinbase could gain support if any states affirm that its staking program facilitates securities offering.
“We believe the commission’s arguments could gain support if any or all of the 10 states that initiated proceedings against COIN for operating an illegal staking program affirm that the program facilitates securities offerings.”
Coinbase adamant that staking is not security
Meanwhile, Coinbase has consistently maintained that its staking service does not qualify as a security.
In a July 14 statement, the firm said that almost every major blockchain relies on staking because it is open, secure, and environmentally friendly. It added that “staking is critical to ensuring the accurate, secure, and efficient operation of this increasingly critical part of the global economy and technology ecosystem.”
Coinbase concluded that the U.S. was at risk of “pushing staking to offshore entities where customers may be less protected.”
The exchange’s chief legal officer Paul Grewal commented that the company had followed due process in offering its staking services, adding that they will defend Americans’ right to stake.
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Oluwapelumi Adejumo
Oluwapelumi values Bitcoin's potential. He imparts insights on a range of topics like DeFi, hacks, mining and culture, underlining transformative power.
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The XRP Ledger is a decentralized cryptographic ledger powered by a network of peer-to-peer servers.
Coinbase
Coinbase is a digital currency exchange and wallet service that allows individuals to buy, sell, and store digital currencies, such as Bitcoin, Ethereum, and Litecoin.
Paul Grewal is the Chief Legal Officer of Coinbase where he is responsible for Coinbase’s legal, compliance, global intelligence, risk management and government relations groups.