Coinbase, the largest cryptocurrency exchange in the United States, has once again found itself in the crosshairs of the Securities and Exchange Commission (SEC), the top financial regulator in the country. The company received a Wells Notice from the SEC, which is a formal notice alerting a recipient of possible enforcement action. This comes after an SEC investigation that Coinbase describes as “cursory” and has left the company confident in the legality of its assets and services. However, the SEC has said it has identified potential violations without being specific about them, which has led to concerns in the crypto industry.

Coinbase is not the first company to receive a Wells Notice from the SEC, and it appears that the regulator is ramping up its efforts to enforce regulations on the cryptocurrency industry. SEC Chair Gary Gensler has stated that most everything in crypto is a security, and the charges the SEC has levied against companies in the industry in the past year suggest that the regulator is preparing for more. Kraken settled with the SEC over staking earlier this year and shuttered that product in the US, and the SEC has charged and/or settled with companies and individuals including BKCoin, FTX’s Nishad Singh, NBA Hall of Famer Paul Pierce, Terra’s Do Kwon, Nexo, Genesis, and Gemini, all in just the last three months.

This is not the first time that Coinbase has had a brush with the SEC, nor its first Wells Notice. The SEC threatened to sue the exchange in 2021 over its yet-to-be-launched Lend product, prompting Coinbase to drop it altogether. Additionally, there is the pending issue of the nine tokens that the SEC deemed were securities, some of which Coinbase still lists.

Coinbase released a detailed response to the SEC’s March Wells Notice, indicating that the company is ready to fight back. The response was written by multiple attorneys at Sullivan & Cromwell and directly challenged the SEC’s legal theories. Coinbase is not backing down on its staking service, which the SEC views as an investment contract and classifies as a security. Coinbase argues that staking is not an investment contract and that the SEC’s legal theories are unsupported by law and untested in court.

Staking allows users to lock up crypto assets to contribute to the mechanism that secures most big blockchains these days. Locking up assets helps because if a validator misbehaves, the assets it posted as guarantees of good behavior can be slashed or taken. More assets mean it’s less likely to misbehave. The SEC’s classification of staking as a security could have far-reaching implications for the crypto industry, as staking is a crucial component of many blockchain networks.

Coinbase has also taken issue with critiques of its Coinbase Wallet, asserting that it is simply a user interface it has made for people to access public chains. The company has also gone into detail about how it lists assets to show that it has never listed something that should be considered a security, among other matters.

The bottom line is that the SEC’s case against Coinbase will likely be a closely watched legal battle in the crypto industry. Coinbase’s attorneys are confident that the case will fail as a matter of fact and law, but the outcome of the case could have significant implications for the crypto industry as a whole. The industry has been waiting for clear regulations from the SEC, and the Coinbase case could provide some clarity on how the regulator views crypto assets and services.