Crypto staking, such as Ethereum 2.0, faces an uncertain future as rumors about imposing potential restrictions on retail customers by the SEC have been circulating.
CEO of crypto exchange Coinbase Brian Armstrong poured his thoughts on the same. In the series of tweets, the top exec expressed concern about the reports as he believe it would be a terrible path for the U.S. if allowed to happen.
Staking, as per Armstrong, is an important crypto innovation that allows users to participate directly in running open crypto networks.
Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints. We need to make sure that new technologies are encouraged to grow in the US, and not stifled by a lack of clear rules.
The top exec then said that regulation by enforcement would encourage firms to operate offshore, citing the example of FTX.
That said, the speculations are not without foundation as Gary Gensler, the chairman of the SEC previously warned that Ethereum’s upgrade could mean the cryptocurrency becomes regulated as a security that sparked a price sell-off.
Gensler’s remarks came during Ethereum’s Merge upgrade where it officially transitioned to a proof-of-stake system.
This arrangement where Ethereum’s proof-of-stake, allowed holders to lock up their coins to earn a return, has caught SEC’s attention to regulating Ethereum as a security.
Ethereum’s Staking Model Drew SEC’s Attention
In a Senate banking committee meeting held last year, SEC chair Gary Gensler initially stated the following, while adding that he is not referring to any specific crypto.
“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, ” as reported by the Wall Street Journal.
In accordance with the Howey test, security is defined as an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
This would be then subjected to disclosure and registration requirements.
But what followed next dashed hope for Coinbase and other crypto exchanges, when the SEC head said any crypto trading platform offering staking services to users “look very similar with some changes of labeling to lending.”
Additionally, Gensler reaffirmed his belief that almost all crypto assets are securities and once more urged crypto firms to register with the SEC.