Coinbase is still fighting legal battles with multiple U.S. states over its staking program. Coinbase execs say that these litigations prevent users from earning more than $90 million in staking rewards. They point out that this dynamic cuts users’ earning prospects severely. The states have come after Coinbase’s staking services, arguing they are illegal. In reply, Coinbase argues that its products are legitimate and appropriate within the context of the emerging cryptocurrency market.
As of April 25, those five states—California, New Jersey, Maryland, Washington, and Wisconsin—are either currently taking or actively seeking legal action against Coinbase. This opposition comes on the heels of cease-and-desist orders that Coinbase’s legal team contends were improperly issued under emergency procedures.
Legal Actions Against Coinbase
Coinbase’s chief legal officer, Paul Grewal, has been chronicling the legal battle as it has unfolded so far on the public record. These challenges call into the core legality of Coinbase’s staking program. The preemption debate only addresses basic staking functions. It asks if they should set off emergency procedures typically reserved for the most egregious acts of securities fraud, like Ponzi schemes.
Paul VanGreck, Coinbase's vice president of legal, has criticized the states' approach, arguing that applying emergency measures to routine staking activities is unwarranted. As a promoter, he makes the peculiar argument that Coinbase exists in a strong framework of federal and state regulation. The company has an additional security stake as part of their security commitment to protect their users.
Five other states—Illinois, Kentucky, South Carolina, Vermont and Alabama—have dropped similar lawsuits. With the other suits left to go they still pose very real threats to Coinbase and all of us that use it.
Impact on Users and Rewards
The ongoing legal battles have clear financial impacts on any users in the states that remain affected. According to VanGreck, residents of California, New Jersey, Maryland, and Wisconsin collectively have lost out on over $90 million in staking rewards. This cumulative loss since June 2023 has been $89 billion. This is a stark figure that underscores the tangible impact of legal barriers. There are users looking to earn rewards on Coinbase’s platform who are directly affected.
The company firmly stands by its position that in the event of a staking failure directly related to Coinbase, it indemnifies users for any losses incurred. This commitment further underscores Coinbase’s commitment to protecting all users’ funds and its confidence in the security and reliability of its staking services.
Current Status and Future Outlook
As of now, Coinbase’s staking program is banned in California, New Jersey, Maryland and Wisconsin. Though Washington state currently has an active lawsuit, it does not currently have an active ban. This hodgepodge of legal treatment encapsulates the confusion and urgency with which state regulators have approached cryptocurrency staking services.
These legal battles may set key precedents for how states can implement cryptocurrency staking programs. This, in turn, would set a powerful precedent that could shake the whole cryptocurrency industry to its core. Coinbase continues to defend its staking program. Beyond that, it wants to draw attention to its operating deeply within the legal and regulatory guardrails it created for itself.
