Coinbase Faces $90M Staking Reward Loss Due to State Legal Actions

Coinbase, a prominent cryptocurrency exchange, is currently facing legal challenges from five US states regarding its staking program. The firm's executives assert that these lawsuits are impeding users' access to over $90 million in staking rewards since 2023.

According to Coinbase’s chief legal officer, Paul Grewal, the states of California, New Jersey, Maryland, Washington, and Wisconsin are actively pursuing legal actions against Coinbase’s staking services as of April 25. Four of these 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, on the other hand, has an ongoing lawsuit but no active ban.

The enforcement actions are based on allegations that Coinbase’s staking services constitute unregistered securities offerings. Coinbase has contested these allegations, maintaining 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. Additionally, Illinois, Kentucky, South Carolina, Vermont, and Alabama have withdrawn similar lawsuits.

Coinbase’s vice president of legal, Paul VanGreck, estimates that residents of California, New Jersey, Maryland, and Wisconsin have collectively missed out on over $90 million in staking rewards since June 2023. 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 emphasized that the restrictions affect consumer choice and contribute to regulatory uncertainty in the broader digital asset industry. VanGreck further highlighted 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. The firm's stance underscores its commitment to providing users with the opportunity to earn rewards through staking, despite the legal hurdles it currently faces.