Kentucky Joins Vermont and South Carolina in Dropping Coinbase Staking Lawsuit

Kentucky’s financial regulator dismisses its legal action against Coinbase, following similar moves by Vermont and South Carolina over the exchange’s staking rewards program.

In a significant development, Kentucky’s Department of Financial Institutions has dropped its lawsuit against Coinbase over the exchange’s staking rewards program. This marks the third state-level regulator in the past month to end legal action against the popular cryptocurrency exchange. The dismissal was filed jointly with Coinbase on April 1, putting an official end to the lawsuit that was originally filed in June 2023, alongside 10 other state regulators.

Kentucky’s Decision Follows Other States in Dropping Lawsuits

Kentucky’s decision to dismiss the lawsuit against Coinbase comes after similar moves by other states, including Vermont and South Carolina. Vermont was the first to withdraw its lawsuit, with the Department of Financial Regulation filing a rescission order on March 13, acknowledging the SEC’s decision to drop its case against Coinbase in late February. The South Carolina Attorney General’s securities division followed suit just days later, filing a joint stipulation with Coinbase to end its legal action on March 27.

These actions mark a notable shift in the legal landscape for Coinbase, especially after the U.S. Securities and Exchange Commission (SEC) dropped its own lawsuit against the exchange in February. Kentucky’s Department of Financial Institutions joined these states in filing a stipulation to dismiss the case, effectively ending the legal battle related to the staking rewards program.

Read More About Coinbase’s Legal Battles

Coinbase's Call for Federal Legislation

Coinbase’s Chief Legal Officer, Paul Grewal, took to social media on April 1 to call for a more unified approach to crypto regulation. He urged Congress to introduce federal market structure legislation to replace the current patchwork of state-by-state litigation, which he views as a burdensome approach for both the industry and regulators.

“This litigation-driven, state-by-state approach needs to end,” Grewal said, emphasizing the need for a clearer federal framework to regulate the cryptocurrency industry.

The ongoing confusion and legal fragmentation surrounding cryptocurrency regulation highlight the broader challenge facing lawmakers and regulators in the United States. Grewal’s comments reflect growing calls from the crypto community for more regulatory clarity and consistency.

Learn More About Coinbase’s Legal Strategy

Seven Lawsuits Against Coinbase Still Active

Despite the dismissals in Kentucky, Vermont, and South Carolina, seven state lawsuits against Coinbase remain active. These states — Alabama, California, Illinois, Maryland, New Jersey, Washington, and Wisconsin — continue to pursue claims that Coinbase violated securities laws with its staking rewards program. These legal actions allege that the rewards from Coinbase’s staking program should be classified as securities, an issue that has been at the center of several crypto-related legal disputes.

Kentucky’s “Bitcoin Rights” Bill and Broader Crypto Policy Shift

Kentucky’s decision to drop its lawsuit comes just days after Governor Andy Beshear signed the "Bitcoin Rights" bill into law on March 24. This new law provides important protections for crypto self-custody and exempts crypto mining from certain financial regulations, including money transmitting and securities laws.

This policy shift in Kentucky is part of a broader trend of state-level crypto-friendly legislation emerging across the country, as states seek to establish clear legal frameworks that foster innovation while ensuring consumer protection.

The state’s legal action against Coinbase was part of a wave of lawsuits filed by various state regulators last year, but Kentucky’s move aligns with the state’s growing recognition of the role of cryptocurrencies in the broader economy.

A Changing Landscape at the SEC

Kentucky’s decision to drop its case against Coinbase is also in line with a broader shift in policy at the SEC. Under the Biden administration, the SEC has dropped or delayed several high-profile lawsuits against crypto companies, signaling a potential change in how the agency plans to approach cryptocurrency regulation.

In addition, the SEC has established a Crypto Task Force to engage with the industry and develop guidelines on how to regulate digital assets effectively. These steps suggest that the SEC may be reconsidering its heavy-handed approach to crypto enforcement in favor of more constructive dialogue with the industry.

Read More About the SEC’s Crypto Task Force

Conclusion

Kentucky’s decision to dismiss its lawsuit against Coinbase is a significant development in the ongoing regulatory saga surrounding the cryptocurrency industry. Along with Vermont and South Carolina, Kentucky is signaling a shift towards more favorable regulatory stances for crypto businesses. With ongoing legal actions in several states, the call for a unified federal approach to crypto regulation is growing louder, and the industry is watching closely to see how lawmakers respond.

For now, Coinbase continues to navigate these challenges as it pushes for clearer, more consistent regulatory guidance that will help foster innovation and growth within the cryptocurrency space.