Cryptocurrency exchange Coinbase is calling for an end to the remaining state lawsuits that target the company's staking services, arguing the holdouts need to "catch up" with the approach at the Securities and Exchange Commission (SEC).
Coinbase, in a blog post first reported by The Hill Friday, claimed residents in five U.S. states are missing out on tens of millions of dollars in staking rewards as a result of the states' ongoing litigation against the exchange.
"It’s time for these states to catch up with the SEC—and nearly every other state—and drop their unfounded cases," wrote Ryan VanGrack, Coinbase's vice president of legal and head of global litigation.
Ten states and the SEC sued Coinbase in June 2023, alleging the country's largest crypto exchange violated securities laws through its staking program.
Crypto staking involves temporarily locking up a certain amount of cryptocurrency to participate in a blockchain network. In exchange, users of trading platforms receive rewards, usually in the form of tokens, somewhat like interest rates in a savings account.
The process supports Coinbase's operations through validating transactions and securing the network, VanGrack explained. He noted this can be a technically complex process and Coinbase offers specific infrastructure to simplify it for users.
The SEC and 10 states' suits alleged Coinbase failed to register its staking services as securities, though the exchange maintains its staking services are not securities and that no user has ever lost money through the process.
Several of the states also issued cease-and-desist orders with their suits to stop Coinbase from staking new assets for users. Four of the five active suits still have the cease-and-desist order in place, according to Coinbase.
The suits were filed under the leadership of former SEC Chair Gary Gensler, who received pushback from the crypto industry for his aggressive and skeptical stance on digital assets.
Washington's tone on crypto quickly changed under President Trump, who has pledged to make the U.S. the "crypto capital" of the world.
The SEC similarly turned a new leaf and dropped a series of lawsuits or investigations into cryptocurrency firms, including Coinbase, as it moves away from the "regulation by enforcement" trend under the former Biden administration.
The SEC dropped its staking case against Coinbase with prejudice, meaning the case is dismissed permanently and cannot be refiled in court.
And in the past month, five of the 10 states — Illinois, Kentucky, South Carolina, Vermont and Alabama — dropped their suits in the wake of the SEC's decision. California, New Jersey, Maryland, Washington and Wisconsin are pushing forward with their suits.
"To be clear, Coinbase stands ready to challenge and defeat these remaining actions in court," VanGrack wrote. "But in the meantime, the holdout states are harming their own residents by cutting off access to services that others across the country—and even residents of their own states using other platforms—are free to use."
Coinbase estimates residents missed out on about $90 million or more in staking rewards since June 2023 and VanGrack warned this number will increase as long as the bans remain.
The bans, VanGrack argued, "single out" Coinbase and the holdout states are "arbitrarily picking winners and losers" as a result.
"Their actions not only deprive consumers of competition and choice, but also push them towards potentially less regulated (or unregulated) staking platforms – some of which lack the consumer protections, public disclosures, and regulatory oversight that Coinbase maintains," he wrote. "If these states wish to protect their residents, targeting Coinbase is self-defeating."
Coinbase, like many other popular crypto exchanges, is welcoming the Trump administration's push for clarity in the regulation space, which has included the formation of a crypto task force at the SEC to look into staking and other crypto components.
"To create space for that regulatory framework to develop, the SEC and several states have abandoned their lawsuits against Coinbase’s staking services," VanGrack wrote, before calling on the crypto community to rally together in defense of staking.
Coinbase is also launching a video campaign on the issue on Friday. The 26-second clip, first reported by Punchbowl News, opens with the phrase "staking is still at stake" and lays out the estimated lost rewards from the suits.
While various states are opting to drop their suits over staking, Oregon Attorney General Dan Rayfield filed a separate suit earlier this month accusing Coinbase of "encouraging" the "sale of unregistered cryptocurrencies" to Oregon residents.
In his suit, he claimed states must "fill the enforcement vacuum being left by federal regulators who are giving up under the new administration and abandoning these important cases."
Coinbase Chief Legal Officer Paul Grewal claimed Oregon is attempting to “revive regulation by enforcement” in a blog post last week.
“As everyone knows, the war against crypto waged by the previous SEC and its allies is over—crypto won,” Grewal wrote. “The SEC finally caught up with the reality that the vast majority of digital assets are not securities—and that there is widespread public support for this revolutionary technology.”
VanGrack echoed this sentiment, telling The Hill that Rayfield's case "is not a case on the merits, it's a case on the politics."
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