The crypto ecosystem is sizzling hot, and it’s not only because Bitcoin’s about to set new all-time highs. States are at war with each other over crypto staking. When I hear people say no, I can’t help but wonder if they’re really protecting us or protecting themselves as the future develops.

$90 Million Lost - Is it Worth It?

Coinbase is currently launching some serious shade at California, Maryland, Wisconsin, and New Jersey. They’re arguing that these states’ staking bans have already deprived residents of ninety million dollars in potential staking rewards. Let that sink in. $90,000,000. That’s not chump change, people, dollars that could instead be reinvested in local communities.

Is the danger of staking really as bad as a Ponzi scheme? Could it truly devolve into an emergency scenario deserving of cease-and-desist orders? It does feel like overreach, like using a sledgehammer to crack a nut. And we’re not talking about unsophisticated investors—we’re among a class of sophisticated investors, many of whom are more than able to price the risks accordingly. Are we treating responsible adults like children?

Think about it this way: states regulate casinos, but they don't ban them outright, even though the odds are stacked against the gambler. Why? Because adults should enjoy the freedom to make their own choices—even risky ones.

Innovation Suffocated - A State's Advantage Lost?

And this isn’t just a tale of lost income – it’s a story of stifled innovation. We all know that blockchain technology is the wild west right now. Staking’s role in securing many of these networks helps explain why it was chosen. By banning staking, these states are essentially telling the next generation of tech entrepreneurs, "Stay away. We don't want your disruptive ideas here."

It makes me think back of how long states lagged on legalizing the entry of services like Uber and Lyft into their markets. They claimed they were trying to save the taxi industry. In so doing, though, they only slowed momentum and robbed their people of an improved service. Are we doomed to repeat the same mistakes over and over again?

Here’s a helpful parallel to the early days of the internet. Just picture if states had attempted to regulate each new website or web app. We’d be living in a much different world today, a world without Google, Amazon or Facebook. Occasionally, the most effective action governments can take is to remove themselves from the equation entirely and allow innovation to thrive.

The remaining states should consider the example of Illinois, South Carolina, Alabama, Vermont, and Kentucky, who already dismissed the lawsuits. Instead of fighting progress, they are allowing their residents to participate in the digital economy and potentially reap the rewards.

Regulatory Overreach - Who Benefits Most?

Coinbase is obviously not a saint. For one, they stand to benefit handsomely from clear crypto rules. Yet there are moments when self-interest coincides with the public interest. On this particular issue, I think they’re right.

The SEC dropped its lawsuit “with prejudice,” meaning they’re not allowed to return with the same charges. That's a huge win for Coinbase and a clear signal that the SEC isn't convinced staking is inherently illegal. So why are these states still holding on to their lawsuits when the federal government has retreated?

• Are they genuinely concerned about protecting investors?
• Or are they afraid of losing control over a rapidly evolving financial landscape?

Perhaps, just perhaps, there’s plenty of both to go around. Here's the thing: overregulation can be just as dangerous as underregulation. It can chill the entrepreneurial spirit and push innovation underground. Most importantly, this pushes consumers towards more dangerous platforms, thereby harming those its intent is to protect.

Whenever a permanent rulemaking is issued, it’s high time for these states to take a pragmatic, compliance-focused view towards the real costs and benefits of their staking bans. Are they really protecting investors at all? Or are they inhibiting innovation and driving crypto activity into more lightly regulated corners? The answer, I would guess, is a mixture of both. The longer they wait, the more they put themselves at risk of falling behind. The future of finance has arrived! We’ll have to make a choice soon on whether we want to get in the game and be active participants or merely spectators.

It's time for these states to take a pragmatic look at the costs and benefits of their staking bans. Are they really protecting investors, or are they simply killing innovation and driving crypto activity to other, less regulated jurisdictions? The answer, I suspect, is a bit of both. But the longer they wait, the more they risk falling behind. The future of finance is here, and we need to decide whether we want to be a part of it, or watch from the sidelines.