The U.S. Securities and Exchange Commission is considering a ban on cryptocurrency staking for retail customers in the country, said Brian Armstrong, the chief executive of Coinbase Global Inc. the largest cryptocurrency exchange in the U.S. Armstrong didn’t clarify the source of the information, citing “rumors,” but called it a “terrible” idea.
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“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 tweeted on Wednesday.
Staking is the process of owners of cryptocurrencies depositing the tokens back into a blockchain to receive rewards, usually in the form of more tokens, and is central to validating “proof-of-stake” (PoS) blockchains such as Ethereum.
Armstrong said staking is important to the crypto industry. “It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” he said.
A recent report from Staked, a non-custodial staking service provider, found that the total value of staked cryptocurrency in Q4 2022 was US$42 billion, with US$3 billion worth of rewards in the past year.
SEC Chairman Gary Gensler said in late 2022 that PoS cryptocurrencies could pass the Howey test and be considered as financial securities. Such an assessment, typically used by courts to determine if an asset is a security, would require issuers to comply with strict consumer protection laws.
The SEC filed a lawsuit in 2020 against Ripple Labs Inc., whose payment network uses the XRP cryptocurrency. The SEC alleges XRP is an unregistered security and that the sale of US$1.3 billion of the tokens was illegal. The case is still in the courts.
Ethereum, the world’s second-largest cryptocurrency by market capitalization moved to a PoS system in September last year, requiring network validators to stake Ether back into the blockchain. The network plans an upgrade, known as Shanghai, in March, which will allow holders to unlock their staked rewards on the network.
The SEC did not respond to Forkast’s request for comment before publication.
See related article: SEC’s Gensler says proof-of-stake cryptocurrencies may be securities