Coinbase has notched a significant legal victory after Alabama regulators abandoned their enforcement action against the exchange’s staking program, leaving just five states still pursuing similar cases. The decision marks a turning point in the broader battle over whether crypto staking—which allows users to earn rewards by helping validate blockchain transactions—constitutes an unregistered security.

Regulatory Retreat as States Back Down

The Alabama Securities Commission was among ten states that joined forces in June 2023 to target Coinbase, alleging its staking services violated securities laws. The move was part of a coordinated crackdown, with the U.S. Securities and Exchange Commission (SEC) filing a parallel lawsuit the same day.

However, on February 28, 2025, a federal court dismissed the SEC’s case **with prejudice**, meaning it cannot be refiled. This ruling appears to have influenced Alabama’s decision to drop its case, signaling a shift in regulatory momentum.

Paul Grewal, Coinbase’s Chief Legal Officer, celebrated the development, noting that the exchange is now **"halfway through"** its legal battles. He criticized the remaining states for continuing their lawsuits, arguing that they are **"wasting taxpayer resources"** while depriving consumers of the ability to earn staking rewards.

SEC’s Crypto Confusion Exposed

The dismissal comes as Coinbase makes progress in its **Freedom of Information Act (FOIA) lawsuit** against the SEC, uncovering internal documents related to the agency’s investigation into **Ethereum 2.0**. Among the disclosed files:

- A **May 2022** SEC staff memo titled **"Analysis of Ethereum 2.0 under Howey"**

- A **February 2023** email thread: **"RE: Is Ethereum a Security?"**

- An **April 2023** PDF: **"Ethereum 2.0"**

- An **August 2023** email: **"RE: Time for an ETH Discussion"**

February 2024** emails debating: **"Spot ETH – Security or Not?"

These documents suggest ongoing internal debate at the SEC over whether Ethereum—and by extension, staking—qualifies as a security. The agency has since formed a **new crypto task force** to clarify regulations, indicating that enforcement actions based on outdated laws may no longer be sustainable.

Market Reaction: COIN Stock Rises Amid Legal Wins

Coinbase’s stock (**COIN**) surged **3%** following the news, extending its weekly gains to **14%**, though it remains down **4%** over the past month. The legal victories have eased investor concerns, with the stock trading at **$194.80** at press time.

What’s Next?

With **five states still pursuing lawsuits**, the battle over crypto staking is far from over. However, the SEC’s retreat and Alabama’s withdrawal suggest regulators may be shifting toward a **wait-and-see approach**—potentially holding off on aggressive enforcement until Congress or the SEC establishes clearer rules.

For now, Coinbase’s latest win strengthens its argument that **staking is not a security**, setting a precedent that could influence future regulatory decisions.

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