KYC to stake your ETH? It’s probably coming to the US

Over the last few years, the cryptocurrency industry has been a primary target for regulators in the United States. 

The legal battle between Ripple and the United States Securities and Exchange Commission (SEC), Nexo’s lawsuit with the securities regulators of eight states, and the scrutiny targeting Coinbase’s Lend program last year are only a few high-profile examples. This year, even Kim Kardashian had first-hand experience with regulatory scrutiny after agreeing to pay a $1.26 million fine for promoting the dubious crypto project EthereumMax.

While Ethereum developers intended to pave the way for key network upgrades in the future, it seems like the recent Merge has further complicated matters between crypto projects and U.S. regulators.

Ethereum: Too substantial for the crypto market?

On Sept. 15 – the same day Ethereum’s Merge took place – SEC Chairman Gary Gensler stated during a congressional hearing that proof-of-stake (PoS) digital assets could be considered securities. Gensler said his reasoning was that holders can earn revenue by staking PoS coins, which could mean that there is an “expectation of profit to be derived from the efforts of others.” The latter is one of the essential parts of the Howey test, used by the SEC and other U.S. authorities to determine whether an asset is an investment contract and falls under federal securities law since it was passed into law in 1946.

As you may already know, Ethereum has shifted from the mining-based proof-of-work (PoW) to PoS, requiring validators to stake Ether (ETH) to add new blocks to the network. In other words, this means that Ether could fall under the Securities Act of 1933, which would require the project to register with the SEC and comply with strict standards to safeguard investors.

Related: Federal regulators are preparing to pass judgment on Ethereum

Gensler argued that intermediaries like crypto exchanges and other providers offering staking services “look very similar” to…