Coinbase Staking Victory: Vermont Drops Legal Action Following SEC

In a significant turn of events for the cryptocurrency industry, Vermont has decided to withdraw its legal action against Coinbase concerning its staking services. This move closely follows the SEC’s own decision to drop a similar case against the prominent crypto exchange. What does this mean for Coinbase, and what implications does it hold for the broader landscape of crypto regulation in the United States?

Vermont Follows SEC, Ends Coinbase Staking Legal Fight

Vermont’s Department of Financial Regulation officially rescinded its “show cause order” on March 13th. This order, initially issued in 2023, alleged that Coinbase was offering unregistered securities through its staking services. This action was part of a coordinated effort involving ten US states, but now Vermont Coinbase case is closed. The department’s recent order explicitly states that it is aligning with the Securities and Exchange Commission’s (SEC) decision to dismiss its own case against Coinbase on February 28th. This alignment suggests a growing consensus, or at least a significant consideration of federal actions at the state level.

According to the Vermont Department of Financial Regulation, the SEC’s formation of a new task force, aimed at providing guidance for cryptocurrency regulations, played a crucial role in their decision. This task force signals a potential shift towards clearer federal rules, making state-level actions less necessary and potentially redundant. The department stated, “In light of the dismissal of the Federal Action and likelihood of new federal regulatory guidance, the Division believes it would be most efficient and in the best interests of justice to rescind the pending Show Cause Order, without prejudice.”

Why Did Vermont Drop the Coinbase Legal Action?

Several factors appear to have influenced Vermont’s decision to drop its legal action against Coinbase staking:

• SEC Precedent: The most significant factor is undoubtedly the SEC’s dismissal of its own case. State regulators often look to federal agencies like the SEC for leadership and guidance in financial regulation. When the SEC dropped its case, it signaled a potential shift in approach or at least a re-evaluation of the legal grounds.
• New Federal Guidance: The SEC’s announcement of a new task force to develop cryptocurrency regulations suggests a move towards creating a more comprehensive federal framework. Vermont likely sees this as a more effective and efficient way to regulate the crypto space, rather than pursuing individual state-level actions.
• Efficiency and Justice: Vermont’s Department of Financial Regulation explicitly mentioned efficiency and the “best interests of justice” as reasons for rescinding the order. Continuing the legal battle while federal guidance is pending would likely be resource-intensive and potentially lead to conflicting regulations.

Coinbase’s Reaction and Call to Action

Coinbase’s Chief Legal Officer, Paul Grewal, responded positively to Vermont’s decision. In a statement on X, he urged other states involved in similar legal actions to “take a page from Vermont’s playbook.” Grewal reiterated Coinbase’s long-held stance: “staking services are not securities.” He lauded Vermont for “embracing progress and providing clarity for its citizens who own digital assets.”

However, Grewal emphasized that the work is not yet complete. He called on Congress to capitalize on the bipartisan momentum in both the House and Senate to enact comprehensive legislation that addresses the unique aspects of digital assets, including staking. This suggests Coinbase is pushing for federal legislation to provide consistent and clear rules across the US, rather than dealing with a patchwork of state regulations.

Broader Implications for Crypto Regulation

Vermont’s decision, following the SEC Coinbase case dismissal, could signal a softening stance towards crypto regulation, or at least a move towards more clarity and less enforcement-heavy approaches. Several recent developments support this view:

• Dismissal of SEC Cases: A growing number of firms facing SEC legal actions have seen their cases dismissed, particularly after Gary Gensler’s departure as SEC Chair. This includes firms like Cumberland DRW and potentially Ripple Labs, suggesting a shift away from the aggressive enforcement actions seen under Gensler’s tenure.
• Focus on Regulatory Clarity: The SEC’s formation of a task force and the increasing calls for congressional action indicate a growing recognition that clear regulatory frameworks are needed for the crypto industry to thrive responsibly. This is a departure from solely focusing on enforcement and suggests a more balanced approach.
• Industry Advocacy: Coinbase and other crypto firms are actively advocating for clearer regulations. Grewal’s Freedom of Information Act request to understand the extent and cost of SEC enforcement actions under Gensler further underscores the industry’s push for a more balanced and transparent regulatory environment.

The Path Forward for Crypto Regulation

Vermont’s decision to drop its case against Coinbase is a noteworthy development in the ongoing saga of crypto regulation in the US. It highlights the influence of federal actions on state-level regulation and suggests a potential shift towards a more coordinated and clarity-focused approach. While the path forward remains uncertain, the recent events indicate a growing momentum for establishing clear and comprehensive rules for the digital asset space. Whether this momentum translates into effective federal legislation remains to be seen, but for now, Coinbase and the broader crypto industry can view Vermont’s move as a positive step forward.