Edited by Jafar224 at 1-4-2024 08:07 AM
The U.S. Securities and Exchange Commission (SEC) may consider reclassifying Ethereum's native token Ether (ETH) as a security. Not everyone believes this to be the case, and so far, the SEC has not explicitly answered whether the Ethereum Foundation is under investigation—just as the agency has yet to definitively state whether ETH is or is not a security.Many digital asset lawyers argue that the "voluntary investigation" conducted by the Ethereum Foundation in its GitHub repository is not cause for alarm. Subpoenaing cryptocurrency companies is a normal business process in the industry. The canary in the Ethereum Foundation's GitHub, indicating whether the ZF has investigated a site, ultimately had to be canceled.Byrne Management Partner Preston Byrne said, "Based on disclosures to date, it's difficult to say what the nature of the ZF investigation into the Ethereum Foundation is or whether the Foundation is the subject of the investigation." & Storm, P.C. told CoinDesk in an email.Byrne suggested that it is "unlikely" for the Ethereum Foundation to be the target of the investigation. However, given that an investigation is underway, there are still some questions. For example, it's currently unclear why the SEC would sue the creators of Ethereum nearly a decade after its launch and after the network has accumulated billions of dollars.Does this investigation involve Ethereum's initial token offering and token distribution, or does it pertain to a shift in the staking security model? How could it be that a U.S. securities regulator has jurisdiction over an organization based in Zug, Switzerland? Will the Commodity Futures Trading Commission (CFTC), which oversees the thriving ETH futures market, retaliate?As for why cryptocurrency companies are being asked about their transactions with the Ethereum Foundation, Byrne provided two seemingly plausible reasons: either the SEC is attempting to classify ETH as a security to compel action in the U.S., or spot exchanges are delisting tokens or refusing to support urgently needed spot Ethereum exchange-traded funds (ETFs).Byrne added that neither of these motivations "necessarily requires the U.S. Securities and Exchange Commission to take enforcement action against the Foundation."But there's a lawsuit. Assuming ETH is a security (although there are plenty of reasons to say it's not). So what happens next? Ethereum is the second-largest blockchain by value (currently valued at $414 billion) and is the home to most commonly used tools in the digital asset industry—classifying ETH as a security could cause chaos. Where the boots will ultimately fall from such a significant move is entirely unpredictable.DemergeOne of the less likely reactions is that Ethereum might revert to the mining model pioneered by Bitcoin, which turned to a proof-of-stake algorithm, rewarding token holders for securing the network by locking up tokens. This, in itself, is unlikely—both inside and outside the Ethereum Foundation, Ethereum developers spent years transitioning to Stake.Vitalik Buterin proposed the idea of Ethereum in 2013, even then suggesting that the blockchain might need to move to Stake, a "consensus model" that was in its infancy at the time. It wasn't until 2020, five years after the network's actual launch, with the introduction of the beacon chain, that Ethereum staking took a concrete first step.Ethereum developers deployed and re-engineered many testnets to try to transition to staking over the course of several years, and a "de-merge" could take just as long.In addition to the scale and cost-effectiveness of staking, part of the problem is that mining is an energy-intensive process that developers are keen to move away from. "Merging" theoretically reduces Ethereum's energy consumption by 99%—silencing critics of cryptocurrency's environmental footprint.Paul Brody, blockchain leader at EY, told CoinDesk, "I can't see any scenario where something like a merger would occur, as you suggested."ETH PoW LaunchEthereum is Ethereum, and Ethereum Classic is Ethereum Classic, even though Ethereum Classic (ETC) actually maintains the "original, unaltered" history of the blockchain. Given that the network is already operational, this is certainly an easier solution than a "de-merge."Of course, Ethereum Classic has undergone several reorganizations of faith over the years. Ethereum alternatives have, too: EthereumPoW (ETHW), a fork introduced during the merger to preserve proof-of-work.ETC and ETHW have not seen significant rallies on news that the SEC may investigate them, indicating that they are unlikely to be rapidly adopted. But it's not impossible. After all, Buterin did acknowledge that ETC is "a very good chain."One notable downside is that Ethereum's founders may hold significant amounts of ETC or ETHW tokens, reflecting their stake in ETH during both forks. It is currently unclear whether the SEC is concerned about Ethereum's token issuance, with Ethereum distributing valuable tokens to founding teams and the Ethereum Foundation. But the agency has previously stated that such expenditures resemble investment contracts.Did XRP Win?The XRP army has been waiting for this moment for years. While not as overtly antagonistic as Ethereum versus Solana, many in the XRP army definitely disdain Ethereum. The history here likely stems from Bill Hinman, the former head of the SEC's Division of Corporation Finance, who declared that ETH is not a security because it is "sufficiently decentralized." XRP army, which supports its own project, sees this intervention as unfairly picking winners in the cryptocurrency market, granting one project special consideration while suppressing others that look very similar.For years, XRP supporters, including Ripple Labs CEO Brad Garlinghouse, have argued that Ethereum is "China-controlled"; that Vitalik Buterin might be co-opted; and that the network itself was "carefully selected" to win in America. Buterin, of course, called XRP a "sh*tcoin" in response to these accusations and gained nothing for himself.One advantage of XRP is that, unlike most cryptocurrencies, it actually has some legal clarity after Ripple Labs pushed back against the SEC in court and won some concessions from the presiding judge. The judge ruled that XRP itself is not a security, and trading in it is not securities trading, although Ripple's programmatic sales to qualified buyers are investment contracts.Christa Laser, a law professor at Cleveland State University, told CoinDesk, "What makes something an investment contract are the characteristics of the sale or the offer for sale, not necessarily which cryptocurrency. ETH is sold on public exchanges with no advertising." "The goal of the U.S. Securities and Exchange Commission may only be staking rewards, but it needs to show there is a core promoter.Jenner's reputation takes another hitIn fact, one possible outcome of the SEC's investigation into ETH is another major blow to the agency in court. As former CFTC commissioner Brian Quintenz said yesterday, after allowing ETH futures and ETH futures ETFs to be launched in the U.S., the SEC implicitly indicated that ETH is a commodity. Moreover, over the years, countless American investors, companies, and individuals have taken action based on signals from the SEC that ETH is not a security.Furthermore, an increasing number of people are realizing that the SEC under Gensler's leadership is unfair in its legal battles with the crypto industry. Instead of enacting comprehensive regulations to genuinely explain the differences between decentralized protocols and traditional business methods, he has filed lawsuit after lawsuit against companies that are adding value to the U.S. economy (rather than subtracting from it).This kind of "lawfare" isn't always effective for Gensler. Just recently, a federal judge accused the SEC of "grossly overstepping its bounds" and "intentionally creating falsehoods" in its dispute with the cryptocurrency company DEBT Box. Prior to this, an appeals panel consisting of three judges unprecedentedly shut down, condemning the agency's years of denial. The number of spot Bitcoin ETFs is "arbitrary and capricious."In essence, if the SEC is indeed trying to establish reasons for rejecting a spot Ethereum ETF by investigating the underlying assets, then it better have substantial grounds to do so. |
Post time 1-4-2024 08:05:31