The US Securities & Exchange Commission has charged Coinbase with the allegations of failing to register the offering of staking-as-a-service. This is on top of not registering the buying and selling of securities. Coinbase, here, seems to be on the path of Binance, which was recently charged by the SEC for the same reasons.
Coinbase continues to operate the crypto asset trading platform; however, it is yet to register as the broker’s platform with the Commission. Per the allegations put forward by the SEC, Coinbase has made billions of dollars since 2019 simply by enabling the functionality of buying and selling crypto assets. It has also been found to intertwine the traditional services of the functions of a broker.
In other words:
- Coinbase offers securities to multiple buyers & sellers through an unregistered marketplace
- Conducts business of effecting securities transactions for its customers
- Serves as an intermediary for customers in terms of settling transactions in crypto assets
The SEC, in the complaint, has stated that the above allegations have not worked well for customers. It has deprived them of the necessary protection which is otherwise available to the customers of registered platforms. Some of the protections provided by the SEC are in the form of recordkeeping requirements, inspection by the SEC, and preventing a conflict of interest.
Staking-as-a-service is a program that allows Coinbase customers to pocket a portion of profit through the Proof of Stake model. The SEC has alleged that Coinbase uses the model to pool stackable crypto assets, perform blockchain transaction validation services, and offer rewards. Such a program is required to be registered under the Commission as per all the relevant laws.
Gary Gensler, the SEC Chair, has said in the official statement that the SEC has alleged Coinbase of commingling and unlawfully offering functions of broker-deal, exchange, and clearinghouse. These have deprived its customers of the necessary protections, including, but not limited to, prevention of fraud, prevention of manipulation, and proper disclosure.
Furthermore, Gary states that as Coinbase encouraged an unregistered staking-as-a-Service program, it has once again deprived its customers of the necessary protections.
Gurbir S. Grewal, the Director of the Division of Enforcement at the SEC, has clarified that no one can ignore the rules because they don’t like them. Signaling that everyone is bound to follow the law no matter how well they find themselves in tune with their personal opinion.
Coinbase coming under allegations follows SEC charging Binance with Section 13 charges. They have spread out to its founder, Chanpeng Zhao, for violating several securities laws. Binance, too, has been charged with the violations of offering unregistered products and services to its customers.
Sigma Chain has also been mentioned in the allegations over Binance, highlighting that it indulges in falsely manipulating the trading volume of the platform.
A response from Coinbase is awaited. It remains to be seen how many more crypto ventures will fall under the scrutiny of the SEC for offering unregulated products and services to customers.