Ethereum’s upgrade to proof of stake may have brought the cryptocurrency back into the SEC’s crosshairs.
Speaking to reporters after Senate Banking Committee on September 15Securities and Exchange Commission Chairman Gary Gensler has reportedly said that cryptocurrencies and brokers that allow holders to “stakes” their cryptocurrency may define it as security under the Howey test, according to the Wall Street Journal.
From a currency perspective […] This is another indication that under Howey’s test, the investing public is expecting profits based on the efforts of others,” Gensler was reported by the Wall Street Journal as saying.
The comments came on the same day (ETH) moving to Proof of Stake (PoS), which means the network will no longer rely on power-intensive “Proof of Work” mining, and instead allow validators to verify transactions and create new blocks in a process that involves “staking.” “
Allowing stockholders to have the coins, Gensler said, results in “the investing public expecting profits based on the efforts of others.”
Gensler went on to say that brokers that offer staking services to their clients are “a lot like – with some changes in labeling – lending.”
The Securities and Exchange Commission previously said it does not view Ethereum as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agree that it acted more like a commodity.
The Securities and Exchange Commission (SEC) keeps a close eye on the crypto space, particularly those that claim to be securities. The regulator has been implicated in a case against Ripple Labs regarding the launch of XRP.
The SEC has also paid companies that offer crypto-lending products to register with it, including $100 million Punishment directed at BlockFi in February for failing to register the high-yield interest accounts that the Securities and Exchange Commission considers securities.
Gabor Gurbacs, director of digital asset strategy at US investment firm VanEck, tweeted to his 49,300 followers that he had been saying for more than six years that “POW’s transition to POS could attract regulatory attention.”
To be clear, I’m not saying that ETH is necessarily a security because of its proof model, but regulators are already talking about bets in the context of dividends that if it’s a feature of what the securities laws call a “combined enterprise”. There are other factors in the Howey test, too.
– Gaborgurbacs (@gaborgurbacs) September 15, 2022
Gurbacs went on to explain that regulators refer to rewards from staking as winnings, a feature of the Howey test.
Howey’s test refers to a 1946 Supreme Court case in which the court established whether the deal qualified as an investment contract. If it did, it would be considered a security and covered by the Securities Act of 1933.