Since Ethereum switched to proof-of-stake, the Securities and Exchange Commission may be looking at it again (SEC).
The Wall Street Journal says that SEC chairman Gary Gensler told reporters after the Senate Banking Committee on September 15 that cryptocurrencies and intermediaries that let holders "stake" their crypto may make it a security under the Howey test.
Gensler was quoted in the WSJ as saying, "From the coin's point of view, [...] that's another sign that under the Howey test, the investing public is expecting profits based on the work of others."
The comments were made on the same day that Ethereum (ETH) switched to proof-of-stake (PoS). This means that the network will no longer use "proof-of-work" mining, which uses a lot of energy. Instead, validators will "stake" to verify transactions and create new blocks.
Gensler said that letting coin holders stake their coins makes "the investing public expect profits based on the work of others."
Gensler went on to say that the way intermediaries offer staking services to their clients "looks a lot like lending, but with different labels."
The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) both agreed that ETH behaved more like a commodity than a security.
The SEC has been keeping a close eye on the crypto space, especially those that it says are securities. The regulator is involved in a case against Ripple Labs over the launch of the XRP token.
The SEC has also tried to get companies that offer crypto lending products to register with them. In February, BlockFi was fined $100 million for not registering high-yield interest accounts, which the SEC considers to be securities.
Gabor Gurbacs, the director of digital assets strategy at the American investment firm VanEck, tweeted to his 49,300 followers that he had been saying for over six years "that POW to POS transitions can draw regulatory attention"
SEC chair says system used by Ethereum following software update could trigger securities laws. Literally published on day 1 of the fork/merge. I have been saying this for over 6 years that POW to POS transitions can draw regulatory attention.https://t.co/3N7v5bcgBo— Gabor Gurbacs (@gaborgurbacs) September 15, 2022
Gurbacs went on to explain that regulators call rewards from betting "dividends," which is a part of the Howey test.
The Howey Test comes from a Supreme Court case from 1946. In that case, the court decided what makes a deal an investment contract. If it does, it would be a security, and the Securities Act of 1933 would cover it.