SEC Chair said that operators of the Proof-of-Stake protocols attract investors with a promise to offers rewards and thus they should be subjected to securities laws.
On Wednesday, March 15, the US Securities and Exchange Commission (SEC) chairman stressed that the Proof-of-Stake (PoS) cryptocurrency should fall under US securities laws.
SEC Chair Speakes on PoS
The PoS digital assets allow its holders to earn rewards by allowing the use of their tokens in ordering transactions. The SEC chair said that the creators of the protocols underpinning PoS tokens often promote their projects on social media. Thus, they also attract investors by offering them the possibility of earning lucrative rewards. In his remarks, Gary Gensler said:
“The investing public is investing anticipating a return, anticipating something on these tokens, whether they’re proof-of-stake tokens, where they’re also looking to get returns on those proof-of-stake tokens and getting 2%, 4%, 18% returns. Whatever they’re promoting and putting into a protocol, and locking up their tokens in a protocol, a protocol that’s often a small group of entrepreneurs and developers are developing, I would suggest that each of these token operators, obviously consulting with the appropriate talent, seek to come into compliance”.
Amid all the current developments, crypto firms have come under increased regulatory scrutiny. Some of the firms have also been avoiding the securities label since it comes with greater investor protection requirements which might be incompatible with the asset class for now.
SEC vs CFTC on Ethereum
The biggest debate around the recent regulatory stand is whether Ethereum comes under the category of a ‘security’ or a ‘commodity’. It’s just last year that the Ethereum blockchain transitioned from being a PoW network to a PoS network.
Amid the recent regulatory developments, the SEC and the CFTC seem to be locking horns with each other. Gensler’s comments on Wednesday came just a week after CFTC chairman Rostin Behnam said that Ethereum is a commodity and should fall under their jurisdiction. “It’s been listed on CFTC exchanges for quite some time, and for that reason,” it comes under CFTC’s jurisdiction. He also added that the CFTC will look after both ETH’s derivatives market and the underlying market.
When asked about CFTC’s stand on Ethereum, Gensler said:
“I’m not going to comment on any one token. As to regards to the Commodity Futures Trading Commission, I love it.”
SEC is not the only regulator willing to refer to Ethereum as a security. Last week, New York Attorney General Letitia James slapped a lawsuit on the crypto exchange KuCoin for offering staking products that allowed users to earn passive income. The lawsuit mention that Ether is a security, making it among the first cases to give Ethereum a legal status.
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