Crypto Teams Might Leave the Industry as Ethereum Faces Security Classification, Amina Bank Warns
The potential classification of Ethereum as a security could have dire consequences for the entire cryptocurrency market, leading to the possible exodus of numerous crypto teams. Not only would this hinder the progress made in the industry, but it might also reverse years of advancements. To avoid such outcomes, the U.S. Securities and Exchange Commission (SEC) has delayed their decision, allowing Ethereum to remain in a “grey area.”
Amina Bank highlights the significant risks to the cryptocurrency and decentralized finance (defi) ecosystem if Ethereum (ETH) were to be classified as a security. This designation could result in the classification of defi platforms that allow users to leverage ETH as unregistered securities brokers. Additionally, cryptocurrency exchanges looking to list ETH would be required to register with the SEC.
According to the latest Crypto Market Monitor report by Amina Bank, the operational complexities arising from this security designation would force many crypto teams to exit the industry. The report also suggests that if the SEC were to declare ETH a security, protocols utilizing the proof-of-stake (PoS) consensus might be compelled to revert to a proof-of-work (PoW) consensus.
The report states, “Gensler has suggested that such PoS chains, rewarding users for locking up their coins, resemble investment contracts and could be deemed securities, without specifically mentioning ETH. Given that most major blockchains, apart from PoW Bitcoin, work on PoS like Ethereum, regulators might extend similar classifications to them.”
Furthermore, the association of non-ETH tokens hosted on the Ethereum blockchain with a potential security could have negative repercussions. The Amina Bank report argues that classifying ETH as a security may not only impede progress but also undo the advancements made in the cryptocurrency market over the years.
To counter the argument for classifying ETH as a security, the report highlights several factors and asserts that, based on the Howey Test, Ethereum would not meet the criteria to be considered a security. Moreover, the report underlines that the Commodity Futures Trading Commission (CFTC) already recognizes ETH as a commodity and allows futures trading of Ethereum. This recognition, along with the SEC’s approval of Ethereum futures exchange-traded funds (ETFs) for trading on regulated security exchanges, further solidifies ETH’s status as a non-security.
In conclusion, the report suggests that the SEC is aware of the drawbacks of classifying Ethereum as a security but has intentionally postponed their decision, leaving Ethereum in a state of uncertainty. This delay allows the SEC to defer their judgment on the applications for U.S. spot Ethereum ETFs.
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