Vermont Ends Coinbase Staking Case, Following SEC’s Decision To Withdraw Lawsuit

• Vermont drops Coinbase case after SEC abandoned similar action on February 28, 2024.
• Coinbase urges other states to follow Vermont in recognizing staking isn’t security.
• SEC’s crypto retreat follows Gensler’s resignation on January 20, signaling regulatory shift.

Vermont’s Department of Financial Regulation has abandoned its legal action against Coinbase, which accused the exchange of offering unregistered securities through its staking service. This decision, announced on March 13, follows the U.S. Securities and Exchange Commission’s (SEC) move to drop its own case on February 28.

The state’s regulatory authority pointed to the potential introduction of new federal guidelines as a primary reason for its decision. “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,” the department stated.

Coinbase, which has long insisted that staking does not classify as a security, welcomed Vermont’s decision. Chief Legal Officer Paul Grewal took to X on March 13, urging other states to follow suit.  “staking services are not securities. We applaud Vermont for embracing progress and providing clarity for its citizens who own digital assets,” Grewal added.

Regulatory Shift in Coinbase Staking Case

The controversy dates back to June 2023, when the SEC sued the exchange, prompting several states—Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin—to take parallel legal action. They issued show cause orders, alleging it violated securities laws by providing staking services without a license.

The order required the exchange to provide a reason why the courts shouldn’t order them to halt the service. Vermont has now stepped back, signaling a potential shift in how regulators may approach staking moving forward.

Grewal sees this as an opportunity for broader regulatory change. “Our work isn’t over,” urging Congress to capitalize on growing bipartisan support in both chambers to enact comprehensive legislation. Policies must address the unique characteristics of digital assets, including staking, to ensure effective regulation, he stressed.

Broader SEC Retreat on Crypto Cases

Vermont’s decision comes as the SEC has been retreating from several high-profile crypto enforcement actions. The change comes after the resignation of former SEC Chair Gary Gensler, recognized for his firm approach toward cryptocurrency, who stepped down on January 20.

Meanwhile, a legal matter concerning the cryptocurrency trading firm Cumberland DRW reached its conclusion, with the SEC dropping charges on March 4. Additionally, the extended legal battle between Ripple Labs and the SEC, which has persisted for over four years, seems to be nearing its final stages.

The exchange is seeking more transparency on past SEC actions. It has filed a Freedom of Information Act request to uncover how many crypto-related enforcement actions occurred under Gensler’s leadership and their cost to taxpayers.

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