Billionaire Coinbase CEO Sounds Alarm Over Rumoured SEC Ban on Crypto Staking for Retail Customers

Brian Armstrong – the brains behind Coinbase – hit back at rumors of an incoming US crypto staking ban.

Taking to Twitter, the Coinbase CEO argued that staking is vital in ensuring users can contribute to the running of decentralized networks while also boosting scalability and network security.

Armstrong also highlighted the importance of Proof of Stake technology for reducing the industry’s carbon footprint.

Staking ban is ‘national security issue’

In the past, regulators have heavily criticized the carbon footprint of Proof of Work (PoW) ‘mining’ technology. Some nations, including China, used excessive energy consumption from PoW as the rationale behind their crypto bans.

The crypto industry, in turn, pinned its hopes on Proof of Stake as a greener alternative, with substantially reduced energy consumption aiming to quell regulators’ attacks. In Q4 2022, there was $42bn staked in crypto, with $3bn staking rewards given.

Yet, it appears regulators have now changed from environmental to a financial criticism. Alleging that staking technology is, in effect, the operation of an unlicensed security product.

Armstrong pointed out that lawmakers risk suffocating a young tech industry. As regulators fail to wrestle with the crypto industry, the lack of sensible and clear rules is stifling growth.

This, the CEO argues, is becoming an issue of national security. The floundering of dinosaur regulators in the US is pushing the industry players and by extension, fintech and Web3 development overseas. He cited the spectacular collapse of FTX in the Bahamas as an obvious case.

With a powerful voice in the industry, Armstrong’s tweets have caused quite a stir. This comes as Coinbase itself, and rival Kraken exchange have both ended up under probe by the SEC over unregulated securities offerings.

Hoskinson says ETH is ‘problematic’

Charles Hoskinson – the founder of Cardano – added to the debate thread.

The ADA boss suggested that Ethereum’s staking model is problematic. It risks failing the Howey test as holders give their assets to someone else for a return. This is different, he argues, from non-custodial liquid staking, and more reminiscent of traditional mining pools.

Hoskinson went on to explain that slashing and bonds are bad with project features such as locking funds, centralization of staking, and poor protocol design, all risk factors.

The Cardano CEO’s concern is the lumping together of all proof of stake technology by regulators. Without respect for the nuanced differences in how they function, it could be a huge mistake.

Rumors that the Securities and Exchange Commission (SEC) wants to ban staking stem from remarks made on September 15 to reporters after a Senate Banking Committee meeting.

SEC Chairman Gary Gensler has said proof of stake coins could be considered securities under the Howey test. Arguing the staking public is expecting profits based on the efforts of others.

But notwithstanding these new efforts to nail down crypto, Washington’s bureaucratic politics model might be the biggest challenge.

Despite the SEC’s rumored plans to ban staking. Ethereum has already been classified as a commodity, not a security, by the CFTC. And in an ongoing case in Tennessee, the IRS is being sued for imposing federal income tax on a couple’s Tezos staking income.

This begs the question, is the SEC really in charge? And why is the US government happy to tacitly legitimize staking through taxation?

It remains to be seen whether the rumors are true or just speculation.