(Bloomberg) -- Coinbase Global Inc.’s head Brian Armstrong escalated his war of words with the US Securities and Exchange Commission, warning he’d heard rumors the agency wants to ‘get rid of’ crypto staking by retail investors.

“I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen,” he tweeted on Wednesday, while arguing that the practice of staking is “a really important innovation.”

The SEC declined to comment on Armstrong’s tweets. The agency has repeatedly said that most digital tokens are securities that should be subject to its rules. Chair Gary Gensler has previously indicated staking could fall under the regulator’s purview. Armstrong argued that staking is not a security.

Staking involves earning rewards by locking up coins to help order transactions on various blockchains such as Ethereum. Coinbase, Kraken and other crypto exchanges have waded into staking products to diversify revenues. 

The firms let users stake coins, without needing specialist computer equipment nor having a minimum amount of 32 Ether, and take a cut of the rewards. Staking on Ethereum can earn yields of about 6%. Coinbase has flagged the progress of its staking services to shareholders.

Last August, Coinbase disclosed that it’s being probed by the SEC over its staking programs. The exchange is the second-largest depositor of staked Ether, according to tracker Etherscan. The DeFi platform Lido Finance is the largest. 

Armstrong has butted heads with the SEC before, such as over a crypto-lending product that the platform had to cancel due to pressure from the agency.

Staking services have gathered steam in recent months after Ethereum — the biggest commercial highway in crypto — switched over to the so-called proof-of-stake method of ordering blockchain transactions in September last year. 

The next phase of Ethereum’s development, an iteration known as Shanghai expected in March, will allow Ether holders to withdraw their staked coins.

Both crypto exchanges and decentralized protocols have offered their staking customers derivative tokens that are traded at a one-to-one ratio with the ether coins they locked up for yields. cbETH, the derivative token for Coinbase users, fell over 3% in the past 24 hours, with Lido’s stETH and Rocket Pool’s RETH dipping by around 2% respectively, according to data from CoinGecko.

Bitcoin uses an alternative computational approach known as proof-of-work, which is widely criticized for sucking up too much energy.

Proof-of-stake blockchains accounted for 23% of the total market value of digital assets at the end of 2022, according to a report from Staked and Kraken. The report estimated the value of staked assets at $42 billion.

An SEC clampdown could drive investors away from centralized exchanges like Coinbase to decentralized staking services such as Lido and Rocket Pool, which may be harder for regulators to pin down. 

Coinbase was pummeled last year by a rout in digital assets and the fallout of the collapse of rival FTX. Coinbase’s shares sank about 86% in 2022. They have pared some of those losses by almost doubling so far in 2023 alongside a rebound in cryptoassets. Coinbase fell as much as 8.9% on Thursday.

For crypto market prices: CRYP; for top crypto news: TOP CRYPTO. 

--With assistance from Sidhartha Shukla.

(Updates token and share performance.)

©2023 Bloomberg L.P.