Prometheum’s plans to custody Ethereum could potentially lead to compliance chaos, warns CFTC chair Rostin Behnam. Specifically, endorsing Prometheum’s claims would automatically classify ETH as security, which would put CFTC registrants that list the token out of compliance. Acknowledging that the Securities and Exchange Commission did not make the determination, Benham emphasized the need for a separate discussion with the regulator to address this individual decision by the entity.
We are working with SEC chair Gary Gensler, his office, and the agency to ensure that whatever steps are taken are deliberate. We are involved, and they understand certainly what the consequences would be if there was a decision made by the agency to determine that Ether was a security. As of now, we need to preserve the integrity of our market and understand that this is a years-old decision where this market is functioning well under the conclusion that the ether is a commodity.
Being the only U.S.-registered crypto platform, Prometheum aspires to be the first SEC-compliant crypto firm and intends to start its crypto business by holding customers’ ETH. The company’s executives are targeting the second quarter of 2024 to launch its trading operations. Undoubtedly, it represents a high-stakes test case in the U.S. crypto scene.
Previously, CFTC commissioner and current SEC counsel, Dan Berkovitz, claimed that Ethereum can function as both a security and a commodity. There are specific legal provisions that allow Ethereum to fall under the purview of both the SEC and the CFTC.
Ethereum’s Classification: Regulators Dilemma
Regarding the division of jurisdiction, the CFTC is in charge of commodities futures and swaps, and the SEC controls matters about securities. Notes, proof of debt, and investment contracts fall under the category of security. While the aforementioned fall under the authority of the SEC, they can also be the subject of a futures contract, which places them under the purview of the CFTC as well.
Therefore, according to Berkovitz, it is not contradictory for an asset to be categorized as both a commodity and a security due to the overlap in the legal meanings of the two terms.