Coinbase Users Miss $90M in Staking Rewards Due to State Legal Actions

Coinbase has stated that ongoing legal actions at the state level are preventing users from accessing over $90 million in staking rewards. The lawsuits, initiated by five states, have led to cease-and-desist orders in four of them, effectively barring new users from participating in staking services. These states—California, New Jersey, Maryland, and Wisconsin—have implemented emergency measures typically used in severe securities fraud cases, which coinbase argues is unjustified for routine staking activities.

The legal actions are based on allegations that Coinbase’s staking services constitute unregistered securities offerings. Coinbase has refuted these claims, asserting that staking services do not meet the legal definition of securities. This position was partially supported when the US Securities and Exchange Commission (SEC) dismissed its staking case against Coinbase in February.

The impact on users has been substantial. According to Coinbase’s vice president of legal, Paul VanGreck, residents of the four states with cease-and-desist orders have collectively missed out on over $90 million in staking rewards since June 2023. VanGreck emphasized that these restrictions not only limit consumer choice but also contribute to regulatory uncertainty in the broader digital asset industry.

Coinbase operates under extensive federal and state regulations, including being registered with FinCEN as a money services business and holding 46 state money-transmission licenses. The company is also publicly traded in the US, subject to regular financial disclosures. Additionally, Coinbase maintains a security commitment that includes indemnifying users for losses in the unlikely event of a staking failure caused by the company.

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 company’s stance underscores its commitment to providing users with the opportunity to earn rewards through staking, despite the legal challenges it faces. The outcome of these lawsuits will have significant implications for the future of staking services and the broader digital asset industry.

Ask Aime: How can I invest in Coinbase given the legal issues?