After rival Kraken was forced to stop providing an investment service that was also offered by the largest cryptocurrency exchange in the United States, Coinbase Global Inc.'s shares fell at their lowest level in more than six months.
As part of the agreement with the regulator, Kraken will pay $30 million to settle allegations that it broke US regulations with its crypto staking products and will stop selling them in the US. Kraken's staking service was alleged by the SEC to be an illegal securities sale.
Paul Grewal, chief legal officer of Coinbase, stated that the company's on-chain staking services are "fundamentally different" in response to Kraken's settlement.
The news of the present day has no effect on Coinbase's staking program. Grewal stated to Bloomberg News in a statement. The fact that Kraken was essentially offering a yield product is abundantly clear from today's announcement. The staking services offered by Coinbase are fundamentally distinct and are not securities.
The biggest drop in the stock since July 26 was 14%. At the time, Bloomberg reported that the United States was investigating whether Coinbase allowed Americans to trade digital assets that should have been registered as securities in an improper manner. Brian Armstrong, the chief executive of Coinbase, criticized the SEC for allegedly wanting to eliminate retail investors' access to crypto staking during the settlement's preview late on Wednesday.
As the trading volume of exchanges like Kraken and Coinbase decreases in tandem with a decline in the prices of digital assets, crypto-staking programs have emerged as a significant source of revenue.
In the third quarter of 2022, blockchain-rewards revenue, primarily from staking, made up 11% of Coinbase's net revenue, up from 8.5% in the second quarter. The second-largest Ether depositor is Coinbase. Decentralized protocols like Lido and Rocket Pool, as well as exchanges, have been used to stake Ether for profits worth billions of dollars.
Grewal stated in an interview that Coinbase's staking product is distinct from Kraken's due to the fact that the staking rewards are fully disclosed and determined by blockchain protocols. Additionally, Grewal stated that staked assets are always customer assets due to the fact that there is "no transfer of titles."
Staking is the process of locking coins in order to earn rewards and help order transactions on various blockchains, such as Ethereum.
Marc Arjoon, a research associate at the cryptocurrency investment firm CoinShares, stated that "the Kraken settlement sets a precedent for the other exchanges that offer similar products for their staking customers."
Customers staking on Coinbase and Binance can also purchase derivative tokens. Despite the fact that the coins are still locked on Ethereum, these tokens can be traded at a one-to-one ratio with Ether. According to CoinGecko, the liquidity derivative token for Coinbase users, cbETH, has lost 5.6% in the last 24 hours