TLDR
- Kentucky has dismissed its lawsuit against Coinbase over staking services
- This follows similar dismissals by Vermont and South Carolina in recent weeks
- The decision comes shortly after Kentucky passed pro-crypto legislation (House Bill 701)
- Seven states still have pending enforcement actions against Coinbase
- Coinbase CLO Paul Grewal advocates for federal regulation rather than state-by-state approach
Kentucky has become the third state to dismiss its lawsuit against cryptocurrency exchange Coinbase over staking services. The Kentucky Department of Financial Institutions filed a joint stipulation of dismissal on Monday, effectively ending its legal action against the exchange.
This dismissal follows similar moves by Vermont on March 14 and South Carolina days later. These states had previously claimed Coinbase’s staking program violated securities laws by operating as an unregistered investment vehicle.
The legal retreat comes just days after Kentucky Governor Andy Beshear signed House Bill 701. This new law provides greater protections for cryptocurrency users and explicitly states that activities like mining, staking, and running blockchain nodes are not subject to securities laws.
Legal Background
The case against Coinbase was part of a multi-state effort launched in June 2023. This coordinated action coincided with the U.S. Securities and Exchange Commission (SEC) filing its own lawsuit against the exchange.
State regulators had argued that Coinbase’s staking program was essentially a securities offering. They claimed the exchange was pooling and delegating customer tokens in proof-of-stake networks without proper registration or investor disclosures.
The SEC dismissed its own case against Coinbase in February 2025. This federal withdrawal appears to have influenced state regulators to reconsider their positions.
Vermont was the first to exit the case on March 14. The state cited the dismissal of the federal lawsuit and the potential for clearer national regulation as reasons for its decision.
Growing Trend of Dismissals
South Carolina followed Vermont’s lead, becoming the second state to drop its lawsuit. According to Paul Grewal, Coinbase’s Chief Legal Officer, South Carolina residents lost an estimated $2 million in staking rewards due to the ban.
“This is not just a victory for us, but for American consumers,” Grewal said after South Carolina’s dismissal. “We hope it’s a sign of things to come in the few states left that restrict staking.”
Kentucky’s decision continues this trend of enforcement pullbacks. The state’s new pro-crypto legislation, House Bill 701, played a key role in this policy reversal.
The bill affirms that self-custody of crypto is legal in Kentucky. It also protects node operators and exempts staking rewards from state money transmitter rules.
Despite these victories, Coinbase still faces legal battles in seven states. California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin all have pending enforcement actions against the exchange.
Grewal has been vocal about the need for federal oversight. “Congress needs to end this litigation-driven, state-by-state approach with a federal market structure law ASAP,” he posted on X following Kentucky’s lawsuit dismissal.
@GovAndyBeshear’s Department of Financial Institutions has followed suit by dismissing Kentucky's staking lawsuit against @coinbase— just as Vermont and South Carolina recently did. Congress needs to end this litigation-driven, state-by-state approach with a federal market… https://t.co/LyCy2iLS20
— paulgrewal.eth (@iampaulgrewal) March 31, 2025
The current regulatory environment requires Coinbase to navigate different rules in each state. This patchwork approach creates confusion for both the exchange and its users.
SEC Acting Chair Mark Uyeda has taken a more conciliatory stance toward crypto. This shift at the federal level, combined with state dismissals, suggests changing regulatory winds that may favor the crypto industry.
Kentucky’s Pro-Crypto Stance
Kentucky’s dismissal closely follows the state’s passage of House Bill 701. This landmark legislation aims to protect digital asset rights within the state.
The bill passed unanimously in both the House and Senate. This rare bipartisan consensus indicates growing political support for cryptocurrency rights.
Governor Andy Beshear signed the bill into law on March 25. The legislation specifically protects activities like mining and staking from securities regulations.
Kentucky’s legislative and regulatory actions demonstrate a welcoming approach to cryptocurrency innovation. This contrasts with the more restrictive positions taken by states that still maintain lawsuits against Coinbase.
Grewal praised Kentucky’s decision, stating: “One by one, in just a few short weeks, states across the country and party lines are standing up for consumers and sound law.”
Coinbase has maintained throughout these legal battles that staking services are not securities. Grewal celebrated Vermont’s dismissal in March by reiterating this position, saying “As we have always said: staking services are not securities.”
The exchange views these dismissals as vindication of its business model. Each state that drops its lawsuit strengthens Coinbase’s position against the remaining legal challenges.
Grewal described Kentucky’s dismissal as “a win for customers, innovation, and economic opportunity.” This framing positions Coinbase as fighting not just for its business interests but for broader cryptocurrency adoption.
The exchange has shown renewed confidence following these legal victories. Coinbase has recently re-entered the Indian market after exiting in 2023 and plans to purchase Deribit, expanding its operations beyond the U.S.
Call for Federal Regulation
Grewal has been consistent in his calls for federal oversight. He argues that the current state-by-state approach creates unnecessary complications and barriers to innovation.
A federal framework would standardize offerings while still protecting consumers. This would provide clarity for exchanges like Coinbase and their users across all states.
The recent dismissals may increase pressure on Congress to create such a framework. As more states reverse their positions, the need for consistent national guidelines becomes more evident.
Until federal legislation is passed, Coinbase must continue addressing each state lawsuit individually. This approach requires resources that could otherwise be directed toward innovation and growth.
Grewal has expressed optimism that more states will lift their bans on Coinbase’s staking services. The momentum from recent dismissals may influence the seven states with active lawsuits to reconsider their positions.
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