Coinbase to refuse ETH staking if regulators attempt to censor the protocol

This was the option chosen by the exchange’s head in a survey on the reaction of the largest staking pools to hypothetical attempts by government agencies to impose restrictions

19.08.2022 - 14:30

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What’s new? The CEO of crypto exchange Coinbase Brian Armstrong said that the platform will stop participating in ETH staking if US regulators demanded that transactions be censored. With this statement, Armstrong responded to Lefteris Karapetsas, founder of Rotkiapp. The latter asked what the representatives of the crypto industry would do if the US Office of Foreign Assets Control (OFAC) demanded censorship at the Ethereum protocol level. Karapetsas suggested two options: compliance and censorship at the protocol level or disabling the staking service.

It's a hypothetical we hopefully won't actually face. But if we did we'd go with B i think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.— Brian Armstrong - barmstrong.eth (@brian_armstrong) August 17, 2022

What else did Armstrong write? The head of Coinbase called the request from regulators hypothetical, noting that he hopes not to see it in real life. He stressed, however, that in the event of demand, the exchange would choose the option to refuse staking to preserve the integrity of the network. Armstrong also wrote that more viable options are possible, such as a lawsuit, which could lead to a resolution of the situation.

According to a Karapetsas survey results of the largest staking pools such as Kraken, Lido Finance, and Coinbase, more than 66% of respondents expressed a willingness to adhere to government agencies’ demands.

In response to this poll, blogger Eric Wall created his own, in which he asked what to do with those who would support compliance with OFAC sanctions. He offered two options: X — consider censorship an attack on Ethereum and burn the share of validators who would support sanctions; Y — tolerate the censorship. Ethereum co-founder Vitalik Buterin opposed censorship, supporting the first option. That was also the way 61% of more than 9500 respondents voted.

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