Coinbase and Algorand give divergent reasons for staking reward suspension

Algorand Foundation CEO said the crypto exchange is evaluating its products and services after receiving a Wells Notice. Coinbase denies the claim.

Algorand Foundation CEO Stacy Waden took to Twitter to confirm rumors about Coinbase’s decision to discontinue Algorand (ALGO) staking rewards for retail customers. Coinbase and Algorand, however, cite different reasons for the move.

According to Waden’s tweet, Coinbase informed Algorand about the sudden termination of rewards for ALGO tokens on March 22, as the crypto exchange evaluates its portfolio of products and services following a Wells Notice issued by the United States Securities and Exchange Commission (SEC) the same day.

Hi #algofam, woke up this a.m, like many of you, to find that @coinbase killed rewards. They’ve now informed us that they are evaluating their services in light of recent regulatory scrutiny, and, for that reason, they will no longer support Algo rewards for Retail customers. 1/

— staci.algo (@StaciW_DC) March 22, 2023

The change does not affect the ALGO token trading and governance rewards for institutional investors, Waden added in the thread. 

The claims have been denied by Coinbase. “The Algorand news is not related,” a spokesperson for the crypto exchange told Cointelegraph, asserting that halting ALGO rewards is not tied to recent regulatory developments:

“Coinbase works alongside asset issuers to provide rewards and continuously reevaluates our offerings to ensure the best customer experience. We have decided to discontinue Algorand (ALGO) rewards at this time.”

Cointelegraph reached out to the Algorand Foundation but did not receive an immediate response.

Coinbase is the latest crypto company to be targeted by U.S. regulators in 2023. After receiving a Wells Notice on March 22, the exchange’s chief legal officer Paul Grewal said the warning “comes after Coinbase provided multiple proposals to the SEC about registration over the course of months, all of which the SEC ultimately refused to respond to.”

Grewal further said Coinbase has “repeatedly, formally asked the SEC to engage in rulemaking for our industry.” This includes filing a petition for rulemaking in July 2022, submitting a comment letter on March 20 supporting the petition, and requesting clarity about the SEC’s views on staking services and the lack of notice provided to the industry. According to Grewal:

“Just two days later we received a Wells notice that includes our staking services – the same staking services referenced 57 times in the S-1 the SEC reviewed in 2021 when we became a public company.”

The Coinbase notice was sent less than two months after the SEC reached an agreement with crypto exchange Kraken for “failing to register the offer and sale of their crypto asset staking-as-a-service program,” which the commission claims qualified as securities under its purview. As part of the settlement, Kraken agreed to cease operations of its U.S. staking program and pay $30 million in disgorgement, prejudgment interest, and civil penalties.

A Wells Notice is a letter warning a company that the SEC may follow with enforcement action after identifying potential violations of securities law. Despite the notice, the crypto exchange says its products and services “continue to operate as usual.”