A decision was made to pause Coinbase Staking service temorarily in some states in response to legal proceedings initiated by local regulators.

Coinbase revealed that users located in certain areas of the US would be temporarily restricted from utilizing specific staking services. This was in a blog post released on July 14. The areas are California, New Jersey, South Carolina, and Wisconsin. The catalyst for this action was the filing of a lawsuit by the U.S. Securities and Exchange Commission (SEC) against Coinbase in June.

The lawsuit alleged that the exchange had been offering unregistered securities. This prompted regulatory bodies in 10 U.S. states to initiate their own legal proceedings.

Compliance Stance and Selective Impact on Staking Services

Coinbase stated its commitment to full compliance with preliminary state orders, even though the opportunity for a thorough defense had not yet been granted. This is despite expressing strong disagreement with the allegations that its staking services are considered securities.

Coinbase clarified that the pause in staking additional assets only applies to users in the states of California, New Jersey, South Carolina, and Wisconsin. Customers based in Alabama, Illinois, Kentucky, Maryland, Vermont, and Washington will retain their eligibility to stake cryptocurrencies, as they had prior to these regulatory actions.

Development Following the SEC Lawsuit

Coinbase’s announcement followed the first pre-motion hearing in the SEC’s case against the exchange. The commission filed the lawsuit on June 6, alleging that Coinbase had operated as an unregistered security broker since 2019. Despite the allegations, Coinbase has consistently denied the accusations leveled against it.

Notably, state and federal regulators have taken action against other cryptocurrency firms providing staking services. They asserted that such services violate securities laws. Earlier this year, Kraken, another prominent exchange, reached a settlement of $30 million with the SEC, which required it to cease offering staking services or programs to clients in the United States.

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