Ethereum 2.0 is barely born, already threatened: The SEC is ready for war

If alive pacem Ethereum – If, from a purely technological point of view, the challenge represented by the transition The Merger on Ethereum brightly raised, the clouds of a new nature have begun to gather around the prodigal son. In fact, The Merge consists of a deep operation of Ethereum, which may even change its economic… and fiscal nature. In any case, it is Security Exchange Commission (SEC), it’s not too late for bad news when it comes to raining down the overflowing enthusiasm of the young crypto industry.

The SEC is dealing with the new Ethereum

As an iconic event, the perfect realization of the transfer of The Merge on the Ethereum network caused reactions beyond the usual circle of the natural crypto ecosystem.

And, when looking at the technological and financial challenge that has been raised, these reactions mainly consist of expressions of respect and warm congratulations, the American financial police (Security Exchange CommissionSEC) for his part did not respect the minimum reserve time before sounding the end of the celebrations and sending everyone back to Earth.

In fact, reported the Wall Street Journal, the head of the SEC Gary Gensler it was announced in just a few hours that the SEC is already wondering about the possible re-categorization of the crypto-asset ether to the rank of “ securities in US tax nomenclature.

At the heart of the problem, the new system of ” stakingin Ethereum 2.0 (ie the generation of dividends, as collateral payment to maintain and ensure the security of the Ethereum network in place of the previous Proof of Work). In other words, an incentive for users in the form of hard hitting ETH tokens that the SEC well requalified (so, let’s kill all the suspense, to effectively tax them).

In support of this position, the SEC’s view on staking:

“Exchanges that offer staking services to users are very similar to lending. From a token perspective [ETH]…this is another indication that, according to the Howey test, the investing public expects profits based on the efforts of other people”.

Howey’s test is applied to Ethereum post-Merge

This “expectation of profit”, as we will see, is one of the central points of the reading grid of the SEC.

This grid thus allows the financial guardian to qualify when an asset should be placed in the category of ” commodities (in short, a raw material such as oil, steel, wheat, etc.) oa securities. It should be noted that the matter is much more complicated considering that in the field of crypto-assets we also consider sub-categories such as ” security signs ” and the ” utility tokens ». We discuss this in more detail in this dedicated article. We note in passing that the SEC itself has evolved the greatest ambiguity on the subject, according to innovations (and the legal river battles with Ripple in particular), and that all the tenors of the industry are there also vary from their minimal hypothesis when a microphone is handed to them.

Just remember that to determine what category an asset should be classified into, the SEC uses the Howey test.

The Howey Test (see in detail here) can be summed up simply:

This test states that it is considered a investment contract (similar to a sale of shares) anything including:

  1. An investment of money
  2. In a “classic” company
  3. With a reasonable expectation of profit from the efforts of others

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New classification for Ethereum, what are the issues?

There is a nagging feeling that investing in crypto can be so – pressure a little – falls within the general framework of the Howey Test, although the latter is from a different era (it has been used since the 1940s). However, we can only note that the margin of interpretation remains wide (is the Ethereum network strictly speaking a “classic company”?)

Finally, what are the risks? An official (and consistent) ranking of an asset like ether in ” security has significant implications for all industry players. Investors may be subject to different reporting obligations and new taxes, as are issuers and managers of tokens. We will think in particular of network validators, or commercial entities that sell staking services for individuals and institutions. Either way, the implications can be many.

Death and taxes, as the popular saying goes, remain the only immutable certainties in life. If the first days ofEthereum 2.0 will be scrutinized by all the “crypto-bros” on the planet, we will make sure that its new version will also arouse the interest and appetite of regulators and financial policemen from all walks of life.

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