- The head of the SEC, Gary Gensler, has said that Ethereum might now be a security following its merge
- Gensler said that stakers may now expect profit from the work of others
- The SEC said in 2018 that Ethereum was not a security “in its present state”
If there’s one man who knows how to spoil a crypto party it’s Securities and Exchange Commission (SEC) chief Gary Gensler, and he’s done it again. On the back of the joy and righteous feelings of accomplishments from Ethereum developers over its merge yesterday, Gensler has come in, turned the house lights on and the music off and told everyone to go home – the SEC Chair has said that, as a result of the merge, ETH tokens produced by the new Proof-of-stake (PoS) consensus mechanism might be classed as securities.
Profits Based on the Work of Others
The prosecco stains had barely dried on tatty sofas by the time Gensler, speaking about PoS systems in general to the Wall Street Journal yesterday, commented about the ideology behind them:
From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others.
The critical change comes from the way the coins are distributed. When William Hinman, then Director of Corporate Finance at the SEC, ruled that ETH coins were not securities in 2018, he did so on the basis that “the present state of Ether, the Ethereum network, and its decentralised structure, current offers and sales of Ether are not securities transactions.”
Gensler Finally Gets His Crack at Ethereum
Gensler has never been happy with this ruling (some say he will never be happy until all cryptocurrencies outside Bitcoin are classed as securities, but we won’t comment on that), and it is telling that the day of the merge he is out there letting everyone know this critical point – the “present state of Ether” has now changed, allowing his team to look into ETH again afresh.
The issue concerns staking ETH, which involves locking up an amount of ETH to secure the network and getting some back in rewards. Gensler is suggesting that this could be the same as the Howey test’s example of buying a plot of land in an orange grove and expecting a profit on it through orange growth, based on the work of others.
SEC Leaves Us Guessing – Again
Gensler added that if an intermediary such as a crypto exchange offers staking services to its customers, which the likes of Coinbase and Binance already are, then it “looks very similar—with some changes of labelling—to lending.”
Of course, as everyone knows, the SEC is very keen on sowing insecurity without offering anything concrete, hence the ‘could’s and ‘might’s, and as a result we can’t expect any kind of ruling on whether ETH is now a security, leaving everyone to just carry on through guesswork.