Coinbase has updated the terms and conditions of its staking service in response to a recent crackdown by the U.S. Securities and Exchange Commission (SEC) on similar products. The move comes a month after the SEC fined Kraken, another popular American digital asset exchange, $30 million for allegedly violating securities laws with its staking product.
Staking is a process where users lock up their cryptocurrency to keep a blockchain network running, and they earn rewards for doing so. Exchanges like Coinbase offer staking as a service for their clients, but this can be a complicated process to do on one’s own.
In Coinbase’s case, it acts only as a service provider connecting clients, validators, and protocols, emphasizing that clients will earn rewards through protocols and not Coinbase itself, which is a point of contention among U.S. regulators.
The biggest change in Coinbase’s updated terms and conditions is that users must now unstake certain assets before selling or transferring them, bringing its service more in line with native staking services that exist on blockchain networks. The assets that must now be unstaked on Coinbase are Solana (SOL), Cosmos (ATOM), Cardano (ADA), and Tezos (XTZ).
Previously, users who held Solana on Coinbase, for example, could earn staking rewards passively without opting into the service and could transfer and sell those assets at any time, but that is changing. Coinbase now warns that any asset staked on its platform may take between a “few hours or a few weeks” before it can be unstaked and then moved or sold, due to protocol rules and Coinbase’s processing time.
Coinbase emphasized in its email to customers that staking will continue, and clients will continue to earn rewards through protocols. However, the update shows that Coinbase is taking steps to address concerns from regulators about its staking service, particularly regarding whether it meets regulatory requirements for securities. The SEC has previously warned that staking services that offer rewards could be considered securities and subject to regulations.
Coinbase’s move could be a sign of increasing regulatory scrutiny of staking services offered by cryptocurrency exchanges in the United States. As the cryptocurrency industry continues to grow and evolve, it is likely that regulators will continue to scrutinize new products and services to ensure they comply with existing laws and regulations.
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