Coinbase staking services ‘different’ to Kraken’s

The first point of difference Coinbase’s head lawyer Grewal highlighted was that Coinbase users retain ownership of their crypto currencies at all times

The staking services offered by crypt currency exchange Coinbase are ‘fundamentally different’ from those provided by its peer exchange Kraken — that lately came under fire from the US Securities Exchange Commission — as per Coinbase’s head lawyer.

Paul Grewal, the Chief Legal Officer of Coinbase, made the comments in his reaction to a shareholder question with respect to its staking services in a Q&A session on the exchange’s Q4 results.

He noted: The staking products offered on Coinbase are basically different from the yield products that were detailed in the reinforcement action against Kraken. The differences matter.

The first difference he highlighted was that Coinbase users retain ownership of their crypto currencies at all times.

In its user agreement last updated December 15, 2022, Coinbase states that it just ‘facilitates the staking of those assets on your behalf,’ but may not replace any Ether lost to slashing — which refers to the blockchain’s mechanism for punishing wrong conduct by lessening tokens of a validator.

He also proposed that one more difference was its customers have a ‘right to the return,’ with the company not able to ‘simply just decide not to pay any returns at all.’

Grewal referred to the exchange’s registration as a publicly-traded firm as one more crucial point of difference that allows customers to have ‘deep transparent insight into our financials.’

In comparison, the SEC’s charge against Kraken alleged its users lost control of their tokens by offering them to Kraken’s staking program and investors were offered ‘outsized returns untethered to any economic realities’ with Kraken also able to pay ‘no returns at all.’

Grewal nevertheless reiterated calls for regulatory clarity on staking services in the U.S. proposing the Securities Exchange Commission was outlining their expectations in court complaints rather than through clear regulations.

He noted: Rules making clear these differences would provide very real clarity and we think the public should not have to analyse complaints in federal court in order to know what a regulator expects.

In a February 13 tweet, he had suggested that staking in itself was not a security transaction, using an analogy of harvesting oranges to explain his stance.

On the back of Securities Exchange Commission Chair Gary Gensler calling on companies to register products with the regulator, Grewal indicated that Coinbase has no issues registering products with the Securities Exchange Commission where ‘appropriate,’ but added: I think it is fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.

Coinbase is facing a Securities Exchange Commission investigation into its products similar to the one that ensued in Kraken settling with the regulator for $30mln and being forbidden from offering staking services to its U.S. clients.

Coinbase plans to put up a fight, nevertheless, with Chief Executive Officer and co-founder, Brian Armstrong, proposing the firm would be willing to challenge the regulator and take the matter to court.