The rumors about the SEC (U.S. Securities and Exchange Commission) banning retail investors from staking cryptocurrency is a facepalm inducer. The benefits of staking extend well past simply profiting. It’s good for the environment, helps projects scale, and adds an element of security.
The rumor came about after Gensler mentioned that crypto assets allowing the option to stake could be classified as securities under the Howey Test. The criteria determine whether something is an “investment contract,” – making it subject to U.S. securities laws.
As determined by the U.S. Supreme Court, an investment contract exists if the four criteria of the Howey Test are met: (1) An investment of money in (2) a joint enterprise with (3) the expectation of profit to (4) be derived from the effort of others.
The investment firm, Paradigm, breaks down how the SEC forces Ethereum’s proof-of-stake model to fit the Howey Test in a detailed blog they posted back in October:
“Staking ETH as a validator meets the Howey test because a validator is (1) “investing money” by locking up 32 ETH to stake, (2) in a “common enterprise” comprised of the various parties participating in the validation process, (3) with the expectation of receiving profits in the form of staking rewards, (4) that are derived from the efforts of other validators or other parties participating in the validation process.”
Coinbase CEO, Brian Armstrong, tweeted his concern over Gary’s comment stating that “this could be a “terrible path” for the country if the financial regulator lets it happen.” Further along the viral thread, he referenced the previous blog as evidence and stated, “staking is not a security.”
Incredibly, the SEC continues to be a detriment. Armstrong is correct in saying that new technologies should be encouraged in the U.S. and not hindered by poorly defined rules. They should start working together during this stage of adoption to claim a strong foothold in this space.
