Debate rages post-Merge over whether Ethereum can be considered a security

Less than 24 hours after Ethereum (ETH) completed its transition to proof-of-stake, the crypto community is enmeshed in arguments about whether the asset can now be considered a security or not.

SEC chairman statement

The Wall Street Journal reported that US Securities and Exchange Commission (SEC) chairman Gary Gensler said cryptocurrencies that allow staking could qualify as securities under the Howey test.

Gensler made this statement after a congressional hearing where he reiterated his belief that most crypto assets are securities. He said:

“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.”

Gensler continued that intermediaries like crypto exchanges offering staking services offer services similar to lending even if there are changes in the labeling.

Gensler did not specify a crypto asset.

Community debates if Ethereum is security

Some within the crypto community argued that Gensler’s statement meant that Ethereum could now be classified as a security.

With Ethereum’s migration to PoS, the asset joins several other smart contract-enabled blockchains that use staking mechanisms to secure their network.

SEC chair says system used by Ethereum following software update could trigger securities laws. Literally published on day 1 of the fork/merge. I have been saying this for over 6 years that POW to POS transitions can draw regulatory attention.https://t.co/3N7v5bcgBo

— Gabor Gurbacs (@gaborgurbacs) September 15, 2022

A strategy advisor at VanECK, Gabor Gurbacs, wrote that Ethereum’s migration from PoW to PoS “can draw regulatory attention.” Gurbacs said:

“To be clear, I am not saying that ETH is necessarily a security because of its proof model, but regulators do talk about staking in the context of dividends which if one feature of what securities laws call a “common enterprise”. There are other factors in the Howey test too.”

Adam…