- Alabama drops lawsuit against Coinbase after two years of legal battles, signaling a shift in regulatory pressure on crypto staking services and potentially influencing other states’ approaches to enforcement
- Coinbase’s CLO calls out five states still pursuing lawsuits, arguing that they are wasting taxpayer money while restricting consumer access to staking rewards programs on their preferred platform
- The SEC’s Crypto Task Force, led by Senator Cynthia Lummis, is working toward a clear regulatory framework for crypto firms to ensure compliance while adapting to evolving financial and technological standards
The Alabama Securities Commission recently filed to drop its enforcement action lawsuit against Coinbase. This decision marks the end of a 2-year case where the exchange was accused of breaking state security laws.
Much like the Federal scale lawsuit by the Securities and Exchange Commission—Alabama went after the exchange for its staking rewards program, accusing Coinbase of using the program to offer unregistered securities.
Coinbase’s reward program allows users to earn tokens by staking their cryptocurrencies in a staking pool, where assets are locked to support network security and efficiency. These staked funds help validators confirm transactions and maintain the blockchain under a proof-of-stake consensus mechanism.
In June 2024, Alabama issued “cease and desist” letters to Coinbase, implying that the exchange could be liable to legal and financial penalties if the staking program continued to operate within the State’s borders.
The endeavor was part of a collective effort by several U.S. States, which banded together to scrutinize crypto staking services, arguing that they function as investment offerings subject to securities regulations. States like California, New Jersey, and Kentucky joined Alabama in targeting Coinbase, mirroring the SEC’s broader crackdown on staking as an unregistered securities practice.
Coinbase CLO Celebrates The Victory
On Twitter, Coinbase’s Chief Legal Officer, Paul Grewal, praised Alabama’s decision to drop its lawsuit against the exchange, calling it a win for both the company and its users. However, he didn’t shy away from criticizing the remaining states still pursuing legal action.
“Five holdouts are still electing to waste taxpayer resources on lawsuits, and four of those have banned staking with @coinbase, depriving consumers of the right to earn on their platform of choice,” Grewal wrote.
The Chief Legal Officer also drew attention to the fact that the Alabama Securities Commission explicitly mentioned the SEC’s “Crypto Task Force” as part of the reason why the state decided to drop the case.
The task force—led by Senator Cynthia Lummis—is tasked with coming up with a clearer regulatory framework for crypto assets. Its goal is to provide crypto firms with clear rules and regulatory guidance so they can comply with existing financial laws.
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