U.S. regulators effectively snuffed out Coinbase Global Inc.’s plan to pay users 4% interest in exchange for lending out their cryptocurrency. Oh well. The exchange still pays holders of some tokens rates as high as 5%.
How is that possible? Through a common crypto-world practice known as staking, which compensates owners of certain coins for a variety of reasons -- including some similar to the payments made to Bitcoin miners. Coinbase, which calls it “the easy way to earn,” launched a staking program on the Ethereum 2.0 blockchain in April and had 1.7 million customers participating by the end of June.
Like many new innovations in the digital-asset world, it’s unclear how staking programs like these should be treated under decades-old laws and court decisions. And yet even as Coinbase pulled the plug on its lending program last month under the threat of legal action from the Securities and Exchange Commission, it continues to offer payments in exchange for staking coins.
“This is part of a broader dichotomy happening where the innovators are innovating at a much faster clip than ever before, and the regulators, the legal system and lawmakers can’t keep pace,” said R.A. Farrokhnia, professor at Columbia Business School and executive director of the university’s Fintech Initiative. “That gap always existed between innovators and regulators. But that’s becoming almost a chasm now.”
