Kentucky drops Coinbase staking lawsuit after passing Bitcoin Rights Bill

The state of Kentucky has dropped its lawsuit against Coinbase, marking the end of almost two years of fighting with the exchange on its staking services. A joint court filing by the Kentucky Department of Financial Institutions and the crypto exchange disclosed this on March 31.

The filing shows that both parties agreed to dismiss the lawsuit without prejudice. This adds Kentucky to the growing list of states that are dropping their legal action against Coinbase after they sued the exchange for its staking service in 2023 which they said amounts to unregistered securities. Vermont and South Carolina have also dismissed.

Coinbase is one of the biggest staking-as-a-service operators in the US, with 3.84 million ETH staked and 120,000 validators under its control. The exchange is also the largest node operator, with 11.42% of staked ETH.

However, staking has attracted concerns from state and federal regulators for years, with some exchanges, such as Kraken, even paying fines for offering staking service. All that has changed since President Donald Trump was sworn in.

Regulators have become more receptive to the crypto industry at the state and federal levels. This was what influenced Vermont to drop its own action on March 14, with the state noting that the US Securities and Exchange Commission (SEC) had dismissed its lawsuit against the exchange.

Nevertheless, seven states, including California, Washington, Maryland, Alabama, Wisconsin, New Jersey, and Illinois, still have enforcement actions pending against Coinbase. It is likely that these states will eventually dismiss their lawsuits as well.

In the meantime, Coinbase chief legal counsel Paul Grewal took to X to complain about the state-driven regulatory approach to issues such as crypto staking, noting that Congress needs to step in with federal legislation.

He said:

“Congress needs to end this litigation-driven, state-by-state approach with a federal market structure law ASAP.”

Before now, Grewal had described the several lawsuit dismissals as a win for the crypto industry, innovation and consumers. According to him, the lawsuit that made Coinbase suspend its staking service in South Carolina cost the state residents $2 million in staking rewards.

Kentucky’s new Bitcoin Rights law led to Coinbase lawsuit dismissal

While Grewal is calling for federal legislation on issues such as staking, it is local laws that made Kentucky dismiss its lawsuit. The dismissal comes less than a week after Governor Andy Beshear signed the Bitcoin Rights Bill into law.

The law, which grants state residents the right to self-custody, use digital assets, and operate nodes, also provided legal clarity for the crypto industry. Under the law, mining and staking are no longer considered securities, and node operators are no longer classified as money transmitters.

The bill was introduced on February 19, which means it took less than two months for legislators to pass it through the two chambers of the state legislature and for the governor to assent to it. Besides its clarity on staking and mining, it also bans any zoning changes that will discriminate against crypto mining.

Meanwhile, Kentucky also has a bill on establishing a Bitcoin reserve that could see the state allocate up to 10% of its portfolio to digital assets. That proposed legislation is still undergoing review.

Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now