Kentucky drops Coinbase's staking lawsuit amid growing regulatory shift

Kentucky has officially dropped its lawsuit against Coinbase over the exchange’s crypto-staking services.

According to a joint filing submitted on March 31, the state’s Department of Financial Institutions dismissed the case without prejudice, signaling a broader shift in regulatory sentiment.

Paul Grewal, Coinbase’s Chief Legal Officer, responded by highlighting the growing momentum in favor of crypto. He pointed out that Kentucky’s decision mirrors similar actions recently taken by Vermont and South Carolina.

Grewal emphasized the need for Congress to establish a national regulatory framework, saying the patchwork of state lawsuits is inefficient and unsustainable.

In February, the US Securities and Exchange Commission (SEC) dismissed its lawsuit against Coinbase, setting the stage for states to follow suit. Vermont and South Carolina were the first to act, withdrawing their claims in a joint stipulation with the exchange last month.

The lawsuits originally stemmed from a coordinated enforcement effort by ten US states in 2023. These states argued that Coinbase’s staking services constituted unregistered securities offerings.

While three have now pulled back, seven states, including California, New Jersey, Illinois, Washington, Alabama, Maryland, and Wisconsin, still have active cases pending against the crypto trading platform.

Coinbase staking raises concerns

Despite the legal victories, Coinbase faces scrutiny from the crypto community over its growing dominance in Ethereum staking.

Critics worry that the exchange’s position as the network’s largest node operator could threaten decentralization.

In a recent report, Coinbase revealed that it controlled over 3.84 million ETH staked across 120,000 validators, equivalent to 11.42% of all staked ETH as of March 4.

While this scale helps maintain uptime and reliability, analysts warn that it also poses centralization risks.

Crypto advocacy group OG Club DAO pointed out that ETH staking may increasingly favor traditional finance interests as institutional adoption increases, which could compromise the network’s neutrality and censorship resistance.

The DAO stated:

“The ETH staking game is a tricky one. Welcoming big players means more capital & security—but if a few control the network, it’s no longer the Ethereum we signed up for.”