TLDR
- Kentucky has dismissed its lawsuit against Coinbase over staking services, following similar actions by Vermont and South Carolina
- This dismissal came shortly after Kentucky passed pro-crypto legislation (House Bill 701) that protects digital asset rights
- Seven states still have pending enforcement actions against Coinbase
- Coinbase CLO Paul Grewal is advocating for federal market structure laws to replace state-by-state regulation
- The dismissals follow the SEC’s February decision to drop its own case against Coinbase
Kentucky has become the latest state to dismiss its lawsuit against cryptocurrency exchange Coinbase over its staking services. The Kentucky Department of Financial Institutions filed a joint stipulation of dismissal on Monday, effectively ending legal action that had claimed the exchange’s staking program violated state securities laws.
This dismissal makes Kentucky the third state in recent weeks to drop similar claims against Coinbase. Vermont was the first to exit on March 14, followed by South Carolina days later.
The legal retreat comes just days after Kentucky Governor Andy Beshear signed House Bill 701 into law. This bipartisan legislation protects digital asset rights in the state and clearly states that activities like mining and staking are not subject to securities laws.
Paul Grewal, Coinbase’s Chief Legal Officer, celebrated the dismissal on social media. “One by one, in just a few short months, states across the country and party lines are standing up for consumers and sound law,” Grewal told Decrypt.
@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 case against Coinbase was part of a larger multi-state effort launched in June 2023. This coordinated action began the same day the U.S. Securities and Exchange Commission (SEC) sued the exchange for alleged securities violations.
State regulators had argued that Coinbase’s staking program was an unregistered securities offering. They claimed the exchange was essentially acting as an investment vehicle without proper registration or investor disclosures.
When South Carolina dropped its case earlier, Grewal noted that residents had lost an estimated $2 million in staking rewards due to the ban. Within hours after South Carolina’s lawsuit was dismissed, Coinbase restored staking services for users in the state.
Federal Dismissal Sets Precedent for State Actions
The regulatory tide began to shift in February when the SEC voluntarily dismissed its own federal case against Coinbase. The agency stated this decision would help support broader efforts to reconsider its approach to crypto regulation.
These dismissals align with changing perspectives at the federal level. SEC Acting Chair Mark Uyeda has taken a more conciliatory stance toward the crypto industry compared to his predecessor.
Kentucky’s new law, House Bill 701, protects various crypto activities beyond staking. The legislation affirms that self-custody of cryptocurrencies is legal and protects node operators from certain regulations.
The bill also exempts staking rewards from state money transmitter rules. This comprehensive approach to crypto regulation passed unanimously in both the Kentucky House and Senate, showing rare bipartisan agreement.
Despite these wins for Coinbase, seven states still maintain legal actions against the exchange. California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin all have pending enforcement actions related to staking services.
Grewal has expressed frustration with the current regulatory landscape. “Congress needs to end this litigation-driven, state-by-state approach with a federal market structure law ASAP,” he posted following Kentucky’s dismissal.
This patchwork of state regulations creates challenges for crypto companies operating nationally. Each state currently determines its own staking rules, leading to inconsistent treatment across state lines.
Coinbase has been on a winning streak against regulators recently. Beyond these state-level victories, the exchange has filed Freedom of Information Act requests against the SEC and criticized the FDIC over similar requests.
The exchange is also expanding internationally, having recently re-entered the Indian market after exiting in 2023. Additionally, Coinbase is pursuing the purchase of Deribit, a move considered significant as it diversifies beyond its U.S. operations.
Kentucky lawmakers are considering additional crypto-friendly legislation. A separate proposal would allow the state to allocate up to 10% of its excess reserves into Bitcoin, further cementing Kentucky’s emerging position as a crypto-friendly jurisdiction.
