SEC Chair Gensler Raises Concerns Over ‘Staking’ Model on Ethereum

[Hydrogen]

(Bloomberg) -- Crypto investors who have been celebrating this week’s overhaul of Ethereum’s blockchain may have to deal with an unwelcome guest at their party: US Securities and Exchange Commission Chair Gary Gensler.

Gensler on Thursday signaled that a feature of the network’s software could lead to tokens being considered securities by the SEC. While Gensler was careful to say he wasn’t speaking about any digital coin specifically, his comments add to questions about the Wall Street regulator’s views on Ether, which is the second-biggest virtual currency.

Gensler has said that Bitcoin, the largest cryptocurrency, isn’t covered by the agency’s securities rules. However, he’s been less unequivocal on Ether. That stance contrasts with that of the agency during the Trump administration and comments made by the top US derivatives regulator, which considers Ether to be a commodity -- a legal label that places the token outside of the SEC’s purview.

On Thursday, Gensler took issue with a feature of Ethereum’s new upgraded blockchain, which has been dubbed the “Merge.” He said that a process known as “proof-of-stake,” in which coin holders can earn financial rewards by allowing a network to use some of their assets, could fall under securities rules. Ether had used the “proof-of-work” method that Bitcoin uses to run its blockchain.

Crypto firms are seeking to avoid the security label because it carries investor-protection requirements that many say are incompatible with with the asset class. “There is a full disclosure obligation on these projects,” Gensler told reporters.

Figuring out if the process of staking Ether -- or earning a return by permitting the revamped Ethereum to deploy the coin -- leads to a security involves complicated legal analysis, according to Brett Harrison, president of FTX.US.

“Perhaps the staking in such a system might be considered an investment contract of some kind and that is really an open question,” Harrison said on Bloomberg Television.

Harrison added that there are multiple kinds of staking, adding to the complexity. These include directly participating in the network to get rewards, achieving the same goal indirectly and a very different opportunity set of putting coins into a decentralized finance protocol.


https://finance.yahoo.com/news/sec-chair-gensler-raises-concerns-010743255.html

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According to this article SEC Chair, Gary Gensler may seek to re-classify ethereum as a security, rather than a commodity. Due to its recent transition to a proof of stake model.

This recent development for ETH could be important and worth following. If only to gain a better comprehension of what the reality of bitcoin someday adopting a PoS - proof of stake model might resemble. In that we have ETH acting as a crash test dummy. Which will better enable us to make future judgements on whether bitcoin should remain with its PoW - proof of work algorithm. Or consider adopting proof of stake as ETH has.

Personally, I've always supported bitcoin and proof of work. Proof of stake has never been forthcoming with compelling documentation or analysis that made it seem like a worthy replacement.

Of course, it helps to have a real world application in ethereum to further deepen the debate. Having followed this case, I have seen a wide spectrum of opinions voiced on it. The number of supporters for further regulation of crypto appear to be on a decline. Coinbase also appears to have had recent dealings with the SEC, which were interesting and noteworthy.

[Moneyprism]

i also prefer Ethereum PoW over PoS,, but for the sake of a greener future i think PoS is not a bad idea because it is more energy-efficient and doesn't require a high performance machine.. but speaking of the news above, what i wonder is what what does the SEC Chair have to do with PoS issues on the Ethereum network?? indeed he is worried about this PoS, but what does that have to do with him?? why should he comment on things that are not his domain?? smh

[Ucy]

The pos is one of the most shameful thing I have ever seen "smart people" adopt. What do you tell investors when their locked coins losses 5—100% and become worthless? Some may even consider revenge by harming the network or people. There is the possibility of suicide or mental breakdown.

In the case of the other, you can repurpose your miners, use it as source of heating during winter, plus other potential multiple applications. This is part of reasons I encouraged building multi-purpose miners... Sato*hi very likely thought about that hence the suggestion to use them as heating source, and other possible reasons for that is to ensure they are not waste of investment or used inefficiently

The pos is a hugh gamble... and its one of biggest contributors to environmental disasters or part of the cause of climate change assuming the real causes (which is evil/immorality) is factored in. It's a very immoral idea that can't stand without heavy regulation

[ChiBitCTy]

You have to love how the SEC is going after stuff like this, or simply raising the "issue" but just simply ignores/allows for US politicians to illegally place insider trades every single day (just had to rant a little here lol). As an advisor I can't stand the SEC, and often disagree with them, but I'm not so sure I totally disagree here. On one hand staking is kind of like bonds, however bonds come with professional ratings (essentially they are vetted by companies like AM Best etc), do not have variable interest rates in a fixed period of time for the contract, if the bond issuer defaults, there is a chance to receive money back through the companies liquidation etc.  Tokens do not provide any insurance like that, have variable returns/rates which provide zero promise- even if the staking requires a lock up period, are not backed by a physical company etc etc.  

Just some out loud thoughts here...anyone have any counter points as to why it shouldn't be considered a security?

[NotATether]

That's why you don't make a reverberation-causing decision until you have calculated all the risks of doing so, and have set up mitigations for those risks.

Ethereum just went along with the sustainable environment gravy train and allowed the words of a few commitees and powerful people to dictate the direction of their project without performing a due-diligence check of the other risks involved in such a switch.

Harrison added that there are multiple kinds of staking, adding to the complexity. These include directly participating in the network to get rewards, achieving the same goal indirectly and a very different opportunity set of putting coins into a decentralized finance protocol.

I wonder if the ETH devs considered this possibility when moving to PoS?

[2stout]

You have to love how the SEC is going after stuff like this, or simply raising the "issue" but just simply ignores/allows for US politicians to illegally place insider trades every single day (just had to rant a little here lol). As an advisor I can't stand the SEC, and often disagree with them, but I'm not so sure I totally disagree here. On one hand staking is kind of like bonds, however bonds come with professional ratings (essentially they are vetted by companies like AM Best etc), do not have variable interest rates in a fixed period of time for the contract, if the bond issuer defaults, there is a chance to receive money back through the companies liquidation etc.  Tokens do not provide any insurance like that, have variable returns/rates which provide zero promise- even if the staking requires a lock up period, are not backed by a physical company etc etc.  

Just some out loud thoughts here...anyone have any counter points as to why it shouldn't be considered a security?

You make valid points but I think the biggest fear, which is a another issue, is that if they make Ethereum a security then what's stopping the SEC from making Bitcoin or any other crypto they choose a security as well?  The SEC's history of moving the goalposts doesn't exactly reassure either.

[barbara44]

It's clear that USA is not a nation that lacks irony. Of course, they are going to end up not caring about illegal bribes and lobbying and the world getting worse just because they are getting paid for it, hell even create a whole generation of fanatics in one side that declines the fact that the world is getting worse, I am talking about oil companies, they pay the politicians and they are basically as close to being tax exempt as it gets and keep on getting richer and killing the world all because they bribe politicians and SEC is nowhere to be found. But, ETH got into proof of stake!!! it's time to give it a closer look because that's such an important topic!! Give me a break.