According to latest reports, Illinois is dropping its lawsuit against Coinbase for its staking program being an unregistered security. This makes Illinois the 4th state to do so, following Vermont, South Carolina and Kentucky. This is a wider trend of states rethinking their approach to crypto services in the US.
Background: The Genesis of the Lawsuits Against Coinbase
Based on available data, in June 2023, a group of 10 US states (Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin) sued Coinbase. The lawsuits were based on the allegation that Coinbase’s staking rewards program was an unregistered security offering to residents. Staking, where cryptocurrency holders lock up their assets to support blockchain network operations in exchange for rewards, was the central issue. Regulators claimed that Coinbase’s staking services were investment contracts and therefore required registration and compliance with securities laws.
The SEC also brought a federal lawsuit against Coinbase, ‘mirroring the states’ concerns. However, in February 2025, the SEC dropped its lawsuit, showing a shift in the federal regulatory stance on crypto services.
Sequential Withdrawals: States Reassess Their Positions
After the SEC, individual states started to reevaluate their positions. Vermont was the first to act, dropping its show cause order against Coinbase on March 13, 2025. The state’s Department of Financial Regulation cited the SEC’s dismissal and the expected new federal guidelines as the reasons for its decision.
South Carolina and Kentucky followed, with Kentucky’s Public Service Commission officially dismissing its lawsuit against Coinbase on March 31, 2025. The commission didn’t provide a reason for the dismissal but it aligns with the broader trend of states backing off from lawsuits against crypto platforms.
Illinois’s recent announcement continues this trend. A spokesperson for the Illinois Secretary of State’s office said
“The office will drop the Coinbase lawsuit” but no timeline was provided.
This is interesting given Illinois is also reportedly working on a Bitcoin strategic reserve bill, which would establish a fund to hold Bitcoin as an asset for at least 5 years.
Remaining States and the Crypto Industry
Despite these withdrawals, 6 states (Alabama, California, Maryland, New Jersey, Washington and Wisconsin) are still suing Coinbase’s staking program. Officials from New Jersey and Washington confirmed their cases are ongoing, the others haven’t made a public statement yet.
The crypto industry is cautiously optimistic. Coinbase’s Chief Legal Officer Paul Grewal has been pushing for a federal regulatory framework.
After Vermont’s dismissal, Grewal said,
“As we have always said: staking services are not securities. We applaud Vermont for moving forward and giving clarity to its citizens who own digital assets.” He added, “Now Congress should seize the bipartisan momentum… to pass comprehensive legislation that takes into account the new features of digital assets, like staking.”
Conclusion: Towards a Unified Framework
The state-level withdrawals coincide with a big shift in the SEC’s approach to crypto under the current administration. After the 2024 election, the SEC, under new leadership, has moved away ‘from aggressive litigation and towards clear rules. This is part of the administration’s broader strategy to encourage innovation in crypto while protecting consumers and markets.
Illinois’s withdrawal of its lawsuit against Coinbase is a change in the relationship between state regulators and crypto platforms. As more states ‘re-evaluate their lawsuits and the federal government signals a move towards comprehensive regulation, the crypto industry is at a crossroads. A unified framework could bring the clarity and stability needed for the continued growth and maturation of the US crypto market.
FAQs
Why did Illinois drop its lawsuit against Coinbase?
Illinois is following the trend of states reevaluating their lawsuits against Coinbase’s staking program after the SEC dismissed its federal lawsuit. New federal regulations are also in the works.
How does staking work in crypto?
Staking is when cryptocurrency ‘holders lock up their digital assets to support the operations and security of a blockchain network. In return, they get rewarded with more cryptocurrency tokens.
Which states are still suing Coinbase’s staking program?
As of April 2025, Alabama, California, Maryland, New Jersey, ‘Washington and Wisconsin are still pursuing lawsuits against Coinbase.
What does the SEC’s dismissal of its lawsuit against Coinbase mean?
The SEC dropping its lawsuit means the ‘federal government is shifting its approach to crypto services from litigation to clear rules. This is to balance innovation with consumer protection.
What does Coinbase think about all this?
Coinbase wants a federal framework’ and has asked Congress to pass legislation to give clarity to all cryptocurrency services.
Glossary
Staking: When cryptocurrency holders participate in network operations, like validating transactions, ‘by locking up their digital assets to get rewarded.
Securities and Exchange Commission (SEC): A U.S. federal agency that ‘enforces securities laws and regulates the securities industry.
Unregistered Securities Offering: The act of offering investment contracts or securities ‘without registering with the relevant authorities, which is against securities laws.
Bitcoin Strategic Reserve Bill: A legislative proposal in Illinois ‘aiming to create a fund dedicated to holding Bitcoin as a financial asset for at least five years.
References
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