South Carolina Dismisses Lawsuit Against Coinbase Related to Crypto Staking Services

South Carolina has dismissed its lawsuit against cryptocurrency exchange Coinbase related to staking services. The state’s Attorney General’s securities division officially dropped the case

After nearly two years of legal battle, South Carolina has dismissed its lawsuit against cryptocurrency exchange Coinbase over crypto staking services.

The state’s Attorney General’s securities division officially dropped the case in a joint stipulation with the crypto company on March 27.

This makes South Carolina the second state to withdraw such legal action, following Vermont’s earlier this month.

The lawsuit was part of a coordinated action by ten states, which sued Coinbase on June 6, 2023. These states accused the exchange of offering unregistered securities through its crypto staking services.

Coinbase’s chief legal officer, Paul Grewal, celebrated the dismissal on social media.

“South Carolina just joined Vermont to dismiss its unfounded staking lawsuit and return the state’s consumer protections to their original form,” Grewal wrote on X. “This is not just a victory for us, but for American consumers and we hope it’s a sign of things to come.”

According to Grewal, residents of South Carolina missed out on an estimated $2 million in staking rewards due to the state’s restrictions.

The legal executive confirmed that staking services are now live again in South Carolina across all Coinbase platforms, including the app and website.

The original legal actions came on the same day the Securities and Exchange Commission (SEC) filed its own lawsuit against Coinbase.

The SEC dropped its case against the exchange on February 27. This may have signaled a shift in the regulatory approach toward crypto staking.

Eight states continue to maintain similar lawsuits against Coinbase. These include Alabama, California, Illinois, Kentucky, Maryland, New Jersey, Washington, and Wisconsin.

All these states claimed that Coinbase’s staking program needed to be registered under their securities laws.

The lawsuits argued that Coinbase’s service for allowing users to deposit crypto assets to help validate transactions and earn rewards, with Coinbase taking a percentage as a fee, constituted selling unregistered securities. Each state also issued cease-and-desist orders under their respective securities regulations.

“The 52 million Americans who own crypto deserve commonsense consumer protections and clear rules,” Grewal stated.

“We applaud South Carolina for standing up for justice and hope the remaining states with bans on staking will take notice.”

The Future of Crypto in South Carolina

In a separate but related development, South Carolina may be taking steps toward embracing cryptocurrency at a state level.

On the same day as the lawsuit dismissal, state representative Jordan Pace introduced the “Strategic Digital Assets Reserve Act of South Carolina.”

This proposed legislation would allow the state treasurer to allocate up to 10% of certain state funds to cryptocurrencies. The bill mentions Bitcoin multiple times, which is unusual as most state crypto reserve proposals use more general language for digital assets.

If passed, the bill would permit South Carolina Treasurer Curtis Loftis to establish a Bitcoin reserve. This reserve would have a maximum capacity of 1 million Bitcoin – a ceiling that matches the federal government’s recently established Strategic Bitcoin Reserve.

The treasurer would be able to add Bitcoin to various state funds. These include South Carolina’s General Fund and the Budget Stabilization Reserve Fund, as well as other investment funds managed by the treasurer’s office.

While Bitcoin is the main focus, the proposed reserve wouldn’output be limited to just this cryptocurrency. However, the bill makes no specific mention of other digital assets like stablecoins, Ethereum, or non-fungible tokens (NFTs).

This proposal is part of a growing trend across the United States. According to Bitcoin Law, 42 Bitcoin reserve bills have been introduced at the state level across 19 states. Of these, 36 bills remain active, showing increased interest in cryptocurrency as a state-level asset.

The federal government has also shown interest in holding Bitcoin. Earlier this month, President Donald Trump signed an executive order creating both a Strategic Bitcoin Reserve and a Digital Asset Stockpile. These federal reserves will initially use cryptocurrency seized in government criminal cases.

The simultaneous lawsuit dismissal and introduction of a Bitcoin reserve bill may signal a shift in South Carolina’s approach to cryptocurrency. The state appears to be moving from regulatory action against crypto services toward potential adoption of digital assets in its financial planning.

Coinbase continues its expansion efforts despite ongoing legal challenges in other states. The company has hinted at potentially acquiring crypto exchange Deribit and is preparing to re-enter the Indian market after receiving regulatory approval from India’s Financial Intelligence Unit.

As more states reconsider their stance on digital assets, the landscape for cryptocurrency in the United States continues to evolve.

South Carolina’s dual actions – dropping legal challenges while proposing state investment – may serve as a model for other states looking to balance regulation with innovation in the cryptocurrency space.