Coinbase contends state lawsuits impede access to $90M in staking rewards for users

Five US states continue to pursue lawsuits against Coinbase’s staking program, and the firm’s executives argue that this is creating barriers for users who seek to earn rewards through the platform, amounting to over $90 million since 2023. 

According to Coinbase’s chief legal officer Paul Grewal, California, New Jersey, Maryland, Washington, and Wisconsin are maintaining active legal actions against Coinbase’s staking services as of April 25. 

Four states, California, New Jersey, Maryland, and Wisconsin, have issued cease-and-desist orders prohibiting Coinbase from offering staking to new users within their jurisdictions. Washington state has an ongoing lawsuit, but no active ban exists.

The enforcement actions stem from allegations that Coinbase’s staking services constitute unregistered securities offerings. 

The crypto firm contested these allegations, which maintain that staking services do not meet the legal definition of securities. In February, the US Securities and Exchange Commission (SEC) dismissed its staking case against Coinbase with prejudice. 

Illinois, Kentucky, South Carolina, Vermont, and Alabama have also withdrawn similar lawsuits.

User impact and lost rewards

Coinbase’s vice president of legal, Paul VanGreck, estimates that California, New Jersey, Maryland, and Wisconsin residents have collectively missed out on over $90 million in staking rewards since June 2023. 

In an April 25 article, VanGreck noted that the cease-and-desist orders against Coinbase were issued using emergency procedures typically reserved for cases of serious securities fraud, such as Ponzi schemes, which he argues is inappropriate for routine staking activities. 

He said the restrictions affect consumer choice and contribute to regulatory uncertainty in the broader digital asset industry.

VanGreck further emphasized that Coinbase operates under extensive federal and state regulations. The company is registered with FinCEN as a money services business, holds 46 state money-transmission licenses, and is publicly traded in the US, subject to regular financial disclosures. 

Additionally, it maintains a security commitment that includes indemnifying users for losses in the unlikely event of a staking failure caused by Coinbase.

VanGreck argued that the continued litigation by the five states contradicts the broader trend toward regulatory clarity. He referenced ongoing efforts by Congress to establish a comprehensive digital asset framework and noted that regulators, including the SEC, have shown movement toward a more balanced approach. 

VanGreck added that courts are not the appropriate venue to decide on staking policy and that elected officials should be the ones to define the legal status of staking services.

Coinbase has pledged to contest the remaining lawsuits and defend user access to staking services.

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