Due to regulatory challenges, Bitstamp will cease its Ethereum staking services for customers in the United States by September 25. The exchange had been offering a 15% commission on staking rewards for Ether in the U.S. While this specific service will be discontinued, Bitstamp assures that its other offerings will continue as usual.
Bobby Zagotta, the CEO of Bitstamp USA and the global chief commercial officer, stated:
“Effective September 25, 2023, we will discontinue staking services for U.S. customers. Consequently, these customers will no longer receive staking rewards. However, all other Bitstamp services will continue without interruption.”
Regulators argue that staking activities meet the criteria of the Howey test, a legal framework used to identify whether a transaction qualifies as an investment contract. If deemed an investment contract, the activity must be registered as a security. The Howey test stipulates that a contract is a security if it involves an “investment of money” in a “common enterprise” with “profits” expected “solely from the efforts of others.”
Understanding Staking Through the Lens of the Howey Test
The Howey test serves as a critical legal benchmark in the U.S. for determining if an investment is a security, thereby subjecting it to specific regulatory guidelines. This is particularly relevant as many cryptocurrencies are not registered as securities.
Staking Ethereum involves locking up cryptocurrencies, arguably meeting the ‘investment of money’ criterion of the Howey test. While the ‘common enterprise’ aspect is open to interpretation, stakers contribute to the blockchain network’s security and functionality, potentially aligning with a collective goal.
The intention to earn rewards could satisfy the ‘expectation of profit’ element. However, some may stake for reasons beyond financial gain, adding complexity to the debate. The rewards generated from staking could also meet the ‘efforts of others’ condition, especially when automated protocols are involved.
SEC’s Stance on Cryptocurrency Staking
Despite the complex legal landscape surrounding the application of the Howey test to Ethereum staking, the U.S. Securities and Exchange Commission (SEC) maintains that staking falls under the category of investment contracts.
Other exchanges like Kraken have also halted staking services in the U.S., even paying a $30 million fine to the SEC. Kraken had advertised up to a 20% annual profit for users participating in its staking pool.
To avoid legal complications, some exchanges are taking precautionary measures. For instance, Coinbase has limited its staking services in four U.S. states after facing regulatory scrutiny for offering unregistered securities. Despite this, Coinbase continues to argue that its staking services do not qualify as securities.
