Late last week, Paul Grewal, Chief Legal Officer at Coinbase, shared his thoughts on the recent settlement between the U.S. Securities and Exchange Commission (SEC) and crypto exchange Kraken over the latter’s staking program.

On 9 February 2023, the U.S. Securities and Exchange Commission (SEC) issued a press release about Kraken that stated:

The Securities and Exchange Commission today charged Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.

To settle the SEC’s charges, the two Kraken entities agreed to immediately cease offering or selling securities through crypto asset staking services or staking programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties.

In a Twitter thread posted on the same day, Grewal confirmed that the rumors that Coinbase Co-Founder and CEO Brian Armstrong had referred to the day before — which were about the SEC’s upcoming attack on crypto staking services offered to U.S. customers — were indeed true.

He also mentioned that the staking products in question were similar to yield products and that on-chain staking services offered by Coinbase were “fundamentally different.”

Grewal highlighted the key differences between Coinbase’s staking services and the staking products in question. He stated that the rewards of Coinbase’s customers are tied to the rewards paid by the protocol and commissions that the company discloses. He also emphasized that the customers have a right to their rewards and that the assets always remain theirs and are accounted for transparently in regular public audits. He went on to say that Coinbase’s finances are a matter of public record and that the publicly listed company provides deep insights into its finances every quarter.

Grewal concluded by saying that rules that make these distinctions clear would provide clarity to the industry and customers. He believes that the public should not have to resort to analyzing court complaints to understand what regulators expect from the crypto industry.

Then, three days later, the Coinbase CEO tweeted that “Coinbase’s staking services are not securities” and that they would “happily defend this in court if needed.”

American lawyer John Deaton, the owner of the Deaton Law Firm, has applauded Armstrong for this courageous stance: