Coinbase CEO Slams States for Denying Investors Staking Rewards Despite SEC Green Light

The cryptocurrency industry received a significant win in late May 2025 when the SEC’s Division of Corporation Finance published a staff statement spelling out how the regulator may evaluate proof-of-stake networks, mainly noting that covered activities do not “involve the offer and sale of securities”. This guidance effectively legitimized staking activities at the federal level, providing relief to an industry that had been operating under a cloud of uncertainty since early 2023.

However, this federal clarity hasn’t translated to uniform state-level acceptance. Industry sources indicate that several states continue to treat staking services as securities offerings requiring registration, creating a complex compliance environment for cryptocurrency platforms.

Coinbase CEO Brian Armstrong has emerged as a vocal critic of this state-by-state inconsistency. In a recent tweet, Armstrong criticized these states for “holding on to a bogus theory on crypto staking” and harming consumers, suggesting that the lack of access to staking is costing them financially. Despite the apparent regulatory clarity and that staking rewards are one of the primary avenues for yield generation from crypto assets, California, New Jersey, Maryland, Washington, and Wisconsin still restrict the practice.

In a recent blog post, Coinbase has provided a map of the United States that quantifies the yield distributions citizens of those states would have received, but for the restrictions.

Source: Coinbase

The conflict dates back to early 2023, when Armstrong first warned about potential federal restrictions on staking. Armstrong expressed concerns about “rumors” that the SEC would like to get rid of crypto staking for retail customers, calling it a “terrible path for the U.S.” His early warnings proved prescient as regulatory scrutiny intensified throughout 2023 and 2024.

New Jersey provides a prime example of state-level resistance to federal guidance. The New Jersey Bureau of Securities issued a Summary Cease and Desist Order against Coinbase for violations of the Securities Law in connection with Coinbase’s crypto staking offerings, determining that Coinbase violated the Securities Law by offering unregistered securities through its staking offerings to New Jersey residents.

Importantly, the action didn’t ban staking outright but required compliance with state registration requirements. “This action does not prohibit Coinbase from offering staking securities, so long as it complies with New Jersey law,” the Bureau noted, highlighting the registration-focused approach that many states continue to pursue.

As the image above shows, the financial implications for investors are substantial. The value of staked assets was about $42 billion in the fourth quarter of 2022, with annualized staking rewards of $3 billion, according to industry data. For the individual states that maintain restrictive policies, residents are effectively cut off from participating in this growing segment of the digital asset economy.

Crypto advocates argue that staking fundamentally differs from traditional securities offerings. Alison Mangiero, the executive director of the Proof of Stake Alliance (POSA), told industry publications that “staking tends to get misconstrued with unrelated activities like lending, but staking is fundamentally a way for anyone to join in providing security for proof-of-stake networks”. Armstrong has emphasized that “staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints”, positioning it as a technological advancement rather than an investment product.

The staking debate reflects broader tensions in crypto regulation. The US regulatory landscape includes a patchwork of state regulation and guidance that has encouraged only a select few national banks and financial services companies to embrace cryptocurrency. This fragmented approach has led to what industry participants describe as “regulation by enforcement” rather than clear, prospective guidance.

President Trump’s recent executive order on digital financial technology may signal a shift toward more crypto-friendly federal policies, but state-level resistance could persist regardless of federal direction.

The crypto industry now faces the challenge of operating in an environment where federal guidance suggests staking is permissible, but state-level restrictions continue to create compliance burdens and limit market access. Industry experts note that the SEC statement will likely start speeding up the process for securing approvals, particularly for exchange-traded funds that incorporate staking.

However, until states align their approaches with federal guidance or Congress provides definitive legislation, such as that in the Stable Act, the regulatory patchwork will likely persist, forcing crypto companies to maintain state-by-state compliance programs and potentially limiting innovation in proof-of-stake technologies. For investors, the message is clear: while staking may be permissible under federal securities law, the availability of staking services will continue to depend significantly on where they live and which platforms they choose to use.