The New “Staking” Model Of Ether May Attract SEC Attention

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Last Updated on September 16, 2022 by Bitfinsider

Ethereum‘s transition to Proof-of-Stake (PoS) may have drawn the attention of the Securities and Exchange Commission (SEC) once more. According to Gary Gensler, the chairman of the Securities and Exchange Commission, digital currencies and intermediaries that permit users to “stake” their coins may be able to pass a crucial test that judges use to determine whether an asset is a security. The Howey test determines whether or not investors expect to profit from the labor of other parties.

The comments were made on the same day that Ethereum (ETH) moved to Proof-of-Stake. As a result of the merge, the network will no longer rely on energy-intensive “Proof-of-Work” mining and instead enable validators to confirm transactions and add new blocks using a process known as “staking.” Gary Gensler claims that if holders are permitted to stake coins, “the investing public will demand returns based on others’ efforts.” Gensler asserted that intermediaries offering staking services to their clients “look quite similar to lending” with a few labeling modifications.

The SEC and the Commodity Futures Trading Commission (CFTC) have previously declared that they did not consider Ethereum (ETH) to be a security because of its more commodity-like behavior.

The cryptocurrency market has received significant attention from the SEC, particularly those it considers to be securities. The regulator has joined a complaint against Ripple Labs involving the launch of the XRP token. Companies that offer crypto loan products have also been under pressure from the SEC to register with them. For instance, BlockFi was hit with a $100 million penalties in February for not registering high-yield interest accounts, which the SEC considers to be securities.

Exchanges like Coinbase and FTX would be required, among other things, to register, monitor trade, protect investors from abuse, and only provide assets resistant to market manipulation. In addition, they would have to give information on the services listed, like operating methods and possible conflicts of interest.

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