Cryptocurrency exchange Coinbase warned the US Securities and Exchange Commission (SEC) about reputational risks should the agency to pursue enforcement action against the exchange.
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In a written response published on Thursday, Coinbase said the SEC case against it would fail "as a matter of fact and law." Coinbase added its marketing of staking services "does not lead users to expect investment profits." Moreover, the exchange believes it is not correct to classify staking rewards as a "return" on an asset:
"Staking rewards are simply the consideration paid to the user by the protocol, in exchange for the user performing validation services — processing and confirming that transactions conform to protocol requirements and are 'valid.' That is a fee for a service, not a return on investment."
The company claims it is eager to "engage collaboratively" with the SEC to avoid many risks that might harm not only the regulator, but also investors.
In March, the San Francisco-headquartered crypto exchange said it had received a Wells notice from the SEC, a declaration that the financial regulator plans to bring the exchange to court.
Coinbase says the SEC's lawsuit might be tied to staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. The exchange noted it had spent "millions of dollars on legal support" and repeatedly asked for the SEC's feedback. However, the watchdog never replied.
Although Coinbase believes in its victory, the exchange has started working on a backup plan.
In late April, the exchange received a regulatory approval from the Bermuda Monetary Authority (BMA) to operate in the region. Coinbase said, it had selected Bermuda as one of its international hubs as the BMA is a "highly respected and experienced financial regulator." Besides Bermuda, the company is also in talks with Abu Dhabi's financial regulator to get "a potential license for a regulated exchange."
- In February, the SEC won an easy victory, as Coinbase's rival Kraken agreed to pay a $30 million penalty for failing to register its staking-as-a-service platform. The exchange also decided to shut down the staking service as part of the settlement with the SEC.
- The regulator believes that crypto staking or lending platforms "need to provide the proper disclosures and safeguards required by our securities laws."
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