If Blockchain Ethereum’s transition to proof-of-stake (PoS) has been successful, it could be clouded by the latest statement from the head of the Securities and Exchange Commission (SEC). Speaking just after The Merge and without specifically referring to Ether, Gary Gensler suggested that PoS cryptos could be equated with financial securities.
Ether would fall into the financial security category
The chairman of the SEC, who has always refused to assign a legal category to Ether, could finally have decided. Presumably awaiting the final transition of the Ethereum blockchain to its new consensus mechanism, he was quick to make a statement about cryptocurrencies using proof-of-stake. And, without always quoting the second crypto on the market, he left little doubt as to the outcome of the debate that divides the US regulatory scene between securities (financial securities) and commodities (goods).
Indeed, according to wall street journalGensler said that blockchain-native cryptos, which allow holders to passively earn returns through staking, are in all likelihood expected to submit to securities regulation overseen by its powerful agency. Quoting the famous Howey test which, since the 1930s, has been used to determine whether or not an asset is an investment contract – namely investors committing their money to finance a company with the intention of profiting from their efforts – he asserted that cryptocurrencies in PoS would probably pass it successfully.
From the point of view of the room […] this is another clue that, according to the Howey test, the investing public anticipates profits based on the efforts of others.
Gary Gensler, SEC Chairman, in WSJ
In other words, the regulator considers staking rewards as dividends paid by the company. As such, cryptos based on this type of mechanism can only be offered to the public under certain conditions. Namely, if the issuer has previously registered with the SEC and adheres to a strict disclosure regime.
Gensler affirms without affirming…
From this point of view, Ether has to worry as well as thousands of other tokens that operate on proof of stake. Bitcoin with its proof-of-work mechanism is the only one today to achieve consensus around its legal categorization. unanimously recognized as commoditiesie as a commodity, it will in fact be placed under the authority of the Commodity Futures Trading Commission (CFTC), and not of the SEC.
However, as usual, the formidable boss of the SEC leaves room for doubt. By not naming Ether precisely, it continues to fuel unbearable tension for ecosystem players US. Admittedly, ongoing litigation, particularly concerning Ripple’s XRP, undoubtedly forces it to exercise restraint, but at the cost of regulatory clarity that is still not there. Notwithstanding this skilfully maintained vagueness, we know that Gary Gensler believes the SEC is best suited to be the industry’s top cop. A conviction all the more firmly rooted as he repeats at will that most cryptos are securities and therefore fall precisely within the competence of his agency, of which it is the core target.
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