Coinbase's Art, Fashion, and Entertainment Hub. Just Days After South Carolina Backed Off Its Staking Lawsuit Against Crypto Exchange Coinbase, Kentucky Has Become the Third State to Fold

Just days after South Carolina backed off its staking lawsuit against crypto exchange Coinbase, Kentucky has become the third state in as many weeks to fold

Just days after South Carolina backed off its lawsuit against crypto exchange Coinbase over staking, Kentucky has become the third state in as many weeks to withdraw from the case, following Vermont’s exit last month.

The Kentucky Department of Financial Institutions filed a joint stipulation of dismissal on Monday, effectively ending its legal action over Coinbase’s staking services, which were previously accused of violating state securities laws.

"Congress needs to end this litigation-driven, state-by-state approach with a federal market structure law ASAP," Coinbase Chief Legal Officer Paul Grewal posted on X.

The case against Coinbase was originally part of a multistate effort launched the same day the U.S. Securities and Exchange Commission (SEC) sued the exchange in June 2023. It's part of a broader crackdown by the SEC on the crypto industry, asserting that many crypto products, including staking, should register with the agency.

However, the agency decided to drop its case against Coinbase in February, paving the way for several states to follow suit.

“One by one, in just a few short months, states across the country and party lines are standing up for consumers and sound law,” Paul Grewal, Coinbase’s Chief Legal Officer, told Decrypt. “Kentucky’s dismissal of its case against Coinbase, in rapid succession after Vermont and South Carolina, is a win for customers, innovation, and economic opportunity.”

State regulators had been maintaining that Coinbase’s staking program amounted to a securities offering that lacked the necessary registration under state laws.

Coinbase was essentially acting like an investment vehicle without proper registration or investor disclosures by pooling and delegating customer tokens in proof-of-stake networks, according to the regulators.

Vermont exited the case on March 14, citing the dismissal of the federal lawsuit and the potential for clearer national regulation.

South Carolina followed days later, with Grewal noting that its residents lost an estimated $2 million in staking rewards due to the ban.

The latest dismissal continues a trend of state-level enforcement pullbacks following the SEC’s own February decision to dismiss its case against Coinbase.

Combined with new federal guidance under SEC Acting Chair Mark Uyeda, who has taken a more conciliatory stance toward crypto, these developments suggest a shift in regulatory strategy.

“This is not just a victory for us, but for American consumers,” Grewal said last week after South Carolina dropped its lawsuit. “We hope it’s a sign of things to come in the few states left that restrict staking.”

As of now, seven states—California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin—still have pending enforcement actions against Coinbase.

Pro-Crypto Bill Gains Ground In Kentucky

Kentucky’s decision to dismiss the Coinbase lawsuit comes shortly after Governor Andy Beshear signed House Bill 701 into law. This landmark bill is designed to safeguard the digital asset rights of Kentuckians.

HB701 affirms that self-custody of crypto is legal, and explicitly states that activities like mining, staking, and running blockchain nodes are not subject to state securities laws. It also protects node operators and exempts staking rewards from state money transmitter rules.

Lawmakers in both the House and Senate passed the bill unanimously, showcasing rare bipartisan consensus on crypto rights.