Coinbase Proposes 36 Recommendations for Digital Asset Regulation to SEC

Coinbase, a prominent cryptocurrency exchange, has presented a detailed blueprint to the US Securities and Exchange Commission (SEC) outlining a comprehensive framework for digital asset regulation. This move follows a series of legal disputes and regulatory uncertainties that have plagued the industry. The blueprint, which includes 36 recommendations, aims to address the regulatory challenges faced by the digital asset sector and promote a more stable and transparent environment.

The proposal by Coinbase comes as the SEC is reviewing its rulemaking process and revisiting controversial proposals, such as the crypto custody rule. The blueprint focuses on creating a clear and effective regulatory framework that respects the limits of the current legal landscape. The recommendations are designed to enhance the adoption of decentralized finance (DeFi) while reducing counterparty risks. One of the key initiatives highlighted in the response is the launch of Verified Pools, a Know-Your-Customer (KYC)-verified liquidity pool. This pool is intended to fortify DeFi by ensuring that participants are properly identified, thereby mitigating risks associated with anonymous transactions.

Coinbase's response also addresses the need for regulatory clarity in the staking services sector. The financial regulator had previously alleged that Coinbase's staking services violated securities laws. By providing a structured approach to regulation, Coinbase aims to resolve these issues and create a more stable environment for digital asset staking. The SEC's acting chair has emphasized the importance of developing regulations that are both effective and cost-efficient. This aligns with Coinbase's vision for a regulatory framework that supports innovation while ensuring compliance with existing laws. The exchange's blueprint is seen as a significant step towards achieving this balance, as it offers practical solutions to the regulatory roadblocks currently faced by the industry.

Coinbase's proposal also underscores the importance of a secure and regulated platform for digital assets. With its expansive reach across multiple blockchains, Coinbase is well-positioned to serve as a custodian for government and institutional investors. This positions the exchange as a key player in the digital economy, providing a reliable and secure infrastructure for the growing number of digital asset users. The response from Coinbase comes at a time when the regulatory landscape for digital assets is evolving. The SEC's review of its rulemaking process and the potential for new regulations highlight the need for a clear and consistent approach to digital asset regulation. Coinbase's blueprint provides a roadmap for achieving this, offering a path forward for the industry that balances innovation with regulatory compliance.

Coinbase Chief Legal Officer Paul Grewal revealed that the US-based exchange has put forward a blueprint for digital securities regulation. According to Grewal, Coinbase’s proposal is a response to a raft of questions presented by SEC Commission Hester Pierce on the best way to regulate digital securities. While the law is crystal clear on traditional securities, digital securities are a gray area for the Commission given the novelty of the concept. To address Pierce’s questions, Coinbase presented a detailed blueprint to assist the securities watchdog.

The first step in Coinbase’s proposal is for the SEC to create a “clear taxonomy” for the distinction between cryptocurrency commodities and securities. Secondly, the SEC is encouraged to declare that secondary market sales of commodities are not securities transactions. As the regulatory haze clears, the SEC has dismissed its Ripple lawsuit, shuttering similar actions against Coinbase and Kraken. Thirdly, rather than creating rules on the go, Coinbase wants the SEC to seek Congressional opinion in areas of ambiguity. Lastly, the blueprint urges the SEC to make rules that recognize the potential of Web 3 and tokenized securities. “If we get this right, we will finally see a real tokenized securities market led by the US,” said Grewal.

The US SEC is changing stances toward the cryptocurrency industry following the departure of Gary Gensler. A newly minted Crypto Task Force led by Pierce is inching toward a series of roundtables to define security status. Several key ecosystem players have indicated a desire to collaborate with the SEC in its “Spring Sprint Toward Crypto Clarity.” While Coinbase is collaborating with the SEC, it has filed a FOIA request against the Commission, seeking clarity for its enforcement actions. “The previous SEC spent four years attacking a lawful industry, and American taxpayers were left holding the bill,” said Coinbase. Outside of its row with US regulators, Coinbase has re-entered India to offer retail trading services. The largest cryptocurrency exchange in the US is expanding to new frontiers to keep pace with its peers.