Coibase victim of the Kraken staking case
Staking: the SEC will go beyond Kraken, perhaps even hitting Coinbase and other platforms that provide the service?
Strong sell-off on Coinbase yesterday, with the stock suffering its worst drop in more than six months.
Coinbase was put under pressure by the bearish domino effect, fueled by the news relating to the agreement that rival Kraken was forced to reach with the Sec. An agreement which provides Kraken’s termination of stakinga service also offered by the largest US cryptocurrency exchange.
Kraken will have to pay $30 million to settle Securities and Exchange Commission charges that it violated US rules.
The SEC held that the Kraken staking service was an illegal sale of securities.
Coinbase: Our service different than Kraken’s
Staking is all about earning rewards by locking up coins to help sort transactions on various blockchains like Ethereum.
I principali exchange, including Coinbase and Binance, started offering Ether staking services for their clients when Ethereum moved its consensus mechanism to the proof of stake. This has allowed investors to put their Ether coins on the blockchain and reap returns.
In response to Kraken’s settlement with the SEC, Coinbase’s chief legal officer Paul Grewal said the company’s on-chain staking services are “fundamentally different”.
According to Grewal, Coinbase’s product for staking is different from Kraken’s because “staking rewards are fully disclosed and determined by blockchain protocols, and staked assets are always client assets since there is no ‘no transfer of title’.
“Coinbase Staking Program Not Affected by Today’s News,” assured Grewal when questioned by Bloomberg News. “What is clear from today’s announcement is that Kraken was essentially offering a yield product. Coinbase services, on the other hand, are fundamentally different and are not securities”.
But Coinbase stock plunged 14%, the biggest drop since July 26.
Coinbase explains what staking is
It should be noted that for Coinbase, revenue from blockchain rewards, mainly from betting, accounted for 11% of net revenue in Q3 2022, compared to 8.5% in the second quarter.
What is staking? Coinbase itself answers precisely:
For a great many investors and traders of traders the main concept is knowing what staking is a way of earning prizes as a reward due to the fact that certain cryptocurrencies are held. The reason your cryptocurrencies earn rewards as you stake is that the blockchain puts them to work. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof-of-Stake: This is the method used to ensure that all transactions are verified and secure without the need for a bank or payment processing company to act as an intermediary. If you decide to use it for staking, your cryptocurrency becomes part of this process.
Coinbase was also talked about at the beginning of the year in relation to the platform’s decision to lay off 20% of its workforce.