In Gensler's words, “From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on efforts of others.”
Finally, Ethereum’s long-anticipated Merge has taken place. However, this upgrade might have drawn them into the eyes of the Securities and Exchange Commission (SEC).
On Thursday, the Securities and Exchange Commission Chairman, Gary Gensler, said that intermediaries and cryptocurrencies allowing holders to stake their coins will have to pass a court test otherwise known as the Howey test. This is to determine whether the asset is a security.
The Howey test will examine if inspectors are expecting to earn from the work of their third parties. However, Gensler said he was not referring to any particular token.
In his statement;
“From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on efforts of others.”
Staking is one of the ways in which crypto networks verify transactions. It is used by some of the big cryptocurrencies, including Ethereum, which joined just hours ago. Staking enables investors to lock their tokens for a specific period to get a return.
According to Mr. Gensler, when a crypto exchange offers staking services, it is similar to some labeling changes to lending.
The SEC has continuously warned that intermediaries offering crypto lending products in the past year should register with the agency. This led to BlockFi paying the sum of $100 million for its failure to comply.
There has been a heated power tussle among federal agencies for jurisdiction over crypto and the congressional committees it will be answerable to. While the Senate Agriculture Committee that oversees Commodity Future Trading Commission (CFTC) held a meeting on Thursday to vet a crypto bill, the Senate Banking Committee overseeing SEC also held a meeting to interrogate Gensler.
The proposed crypto bill by Senate Agriculture Committee will see Bitcoin and Ethereum as digital assets, not securities. It will also grant CFTC the authority to oversee digital commodities.
The crypto industry has shown a great preference for being regulated by CFTC rather than SEC. This is so because they believe that SEC has stringent regulations.
CFTC will also partner with other regulators to oversee the energy expenditure of crypto projects. They also plan to provide incentives for firms willing to exit the Proof-of-Work (PoS) system.
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