Coinbase, one of the largest US crypto exchanges, is taking a defiant stance against the Securities and Exchange Commission (SEC) after the agency issued a warning of a potential lawsuit, Axios details in a report.
The company has responded to the SEC's March Wells notice with a detailed and direct rebuttal written by multiple attorneys at Sullivan & Cromwell.
What's In the Coinbase Response
In a blog post, Coinbase stated that it is the same company as when it was authorized to become public two years ago, and it did not list securities then, nor does it now.
Coinbase argues that the SEC's legal theories lack legal foundation, have not been challenged in court, and are likely to have unforeseen effects for the Commission, investors, and markets far beyond the digital asset industry.
Axios highlights that a critical issue that Coinbase is not backing down on is its staking service. The SEC views this as an investment contract, which it classifies as a security, and that the SEC should write new regulations to make clear how securities laws apply to digital assets.
On the other hand, SEC Chair Gary Gensler has stated that most digital assets are securities and that existing rules are clear. Coinbase has also taken legal action to compel the SEC to respond to a rulemaking petition submitted last year.
Coinbase believes that staking is not an investment contract but a service that allows users to lock up some crypto assets to contribute to the mechanism that secures most big blockchains.
Additionally, the company acknowledges that locking up assets can help if a validator misbehaves, as the support it posted as guarantees of good behavior can be slashed or taken.
Furthermore, the more assets that go to a particular validator, the more people have faith in that operation. Coinbase made opting to stake easy for users, as stakers can also make a little yield for participating in these arrangements.
Coinbase Holds on Position
If the SEC pursues legal action, Bloomberg reports that Coinbase has warned that it would put the agency's practices under a microscope, including its refusal to allow Coinbase to use an alternative trading system license it had acquired to register.
This could require Coinbase to jettison its entire customer-facing business and overhaul its public company governance structure.
"A Wells Notice-at this stage, when there's not a clear rulebook-is not constructive, and it's not good for America," CEO Brian Armstrong stated in a video. "We are prepared to defend that position in court, but it doesn't have to come to that."
The crypto exchange's complete response to the Securities and Exchange Commission's March Wells notice is here.
Numerous reports have indicated that the SEC has been leading the charge in cracking down on cryptocurrencies, with Chairman Gary Gensler consistently reaffirming his stance that nearly all forms of crypto assets fall under the purview of securities regulations.
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