Kentucky drops crypto staking lawsuit against Coinbase

Kentucky has dropped its lawsuit against Coinbase over staking services, becoming the third U.S. state to roll back legal action against the exchange in recent months.

On March 31, the Kentucky Department of Financial Institutions filed a joint stipulation of dismissal, officially ending its case that accused Coinbase of offering unregistered securities through its staking program.

Following the move, Coinbase Chief Legal Officer Paul Grewal took to X, calling for federal clarity. 

“Congress needs to end this litigation-driven, state-by-state approach with a federal market structure law ASAP,” he wrote.

Kentucky’s exit follows similar dismissals by Vermont and South Carolina. Vermont backed out on March 14, citing the dismissal of the U.S. Securities and Exchange Commission’s federal case and the need for clearer nationwide rules.

The SEC itself set the tone earlier this year when it voluntarily dropped its lawsuit against Coinbase on Feb. 27. The agency said the move would help support its broader efforts to rethink and reshape how it approaches crypto regulation.

South Carolina followed Vermont and dismissed its case just days later, with Grewal noting at the time that local users lost around $2 million in staking rewards due to the ban. 

Within hours after the suit was dropped, the exchange confirmed that staking was live again in South Carolina across all access points.

A group of ten states originally targeted Coinbase in June 2023 after the SEC sued the exchange. At the time, regulators argued that Coinbase’s staking program was essentially an unregistered securities offering since users earned rewards by delegating their tokens through the platform.

As of now, seven states, namely California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin, still have pending actions against Coinbase.

Kentucky dropped the Coinbase lawsuit less than a week after Governor Andy Beshear signed the state’s “Bitcoin Rights” bill into law. It secures the right to self-custody, allows residents to run blockchain nodes, and shields mining operations from discriminatory regulations.

Lawmakers are also weighing a separate proposal that would let the state allocate up to 10% of its excess reserves into Bitcoin.