The recent Ethereum merge has attracted the attention of authorities, analysts, and investors around the world. However, while the whole crypto community was watching the crucial transition of Ethereum’s mainnet from Proof-of-Work (PoW) to Proof-of-Stake (PoS), U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler spoke out about the transition, which will be enough to bring Ethereum under SEC’s radar.
Ethereum Is The Next Target After Ripple
On Thursday, SEC Chair Gary Gensler said that the native PoS cryptocurrencies might be considered to abide by federal securities regulations, and the recently merged Ethereum is no exception. Gensler noted that staked cryptocurrencies that generate profits for investors could easily pass the Howey test.
The Howey test is a security test for cryptocurrencies; if the test is passed, the cryptocurrency will be considered an investment contract that must follow federal security laws to continue further expansion in the market. An asset is concluded as an investment contract if the money is invested to fund an enterprise with an expectation to generate profits.
When Ethereum was based on the Proof-of-Work mechanism, it was not considered an investment contract, and thus it was not required to follow federal security laws. Gary Gensler assured that no crypto coins would be spared from these laws.
Regarding this, SEC stated, “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. It looks very similar – with some changes of labeling – to lending.”
XRP Lawyers Predict The Future Road
The SEC can make legal trouble for Ethereum following the XRP lawsuit. John Deaton, Amicus Curiae in the Ripple lawsuit, said that the Ethereum merge might turn out to be dangerous for the decentralized community, and the SEC can take up the charge and go after PoS tokens.
Crypto policy Coin center stated, “Both consensus mechanisms [proof-of-work and proof-of-stake] are explicitly designed to avoid any such reliance by creating an open competition amongst strangers wherein any self-interested participant can and will fill the gap left by any other unresponsive, corrupt, or censorious participant.”
Crypto firms seek to avoid this security scrutiny by the SEC as it does not make sense with investors’ asset class. However, the SEC made it clear that crypto lending platforms offering PoS tokens to generate profit need to abide by the authority to operate legally.
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