SEC chairman Gary Gensler said in a recent report from the Wall Street Journal (WSJ) that cryptocurrencies with proof-of-stake can be considered securities. According to the WSJ report, the head of the SEC claimed that the management tokens of proof-of-stake (PoS) blockchains, which enable holders to passively earn returns through equity, could pass the Howey test.
Gensler cited Cardano, Solana, and Ethereum (which has recently completed its PoS transition) as examples of such assets currently on the market. Under the aforementioned Howey test, an asset that qualifies as an investment contract is subject to federal security laws.
The Howey test was established in the 1946 Supreme Court case. Accordingly, if investors financially support a business to make a profit, no matter how small, they consider the investment asset as an investment contract. In summary, for a financial instrument to be called a security and come under the control of the SEC, the instrument must meet these four criteria:
- Must be an investment
- In anticipation of a profit
- in a joint venture
- With the profit to be obtained by a third party
This is why Gensler believes PoS digital assets can pass the Howey test:
“One of the key indicators of the Howey test is that the investor expects profits based on the efforts of others.”
Koinfinans.com As we reported, on September 15, Ethereum completed its transition from a proof-of-work (pow) network to a PoS network. Under the PoS mechanism, participants in a blockchain network “share” (or lock) cryptocurrencies to process transactions and secure the network. This mechanism differs from PoW cryptocurrencies like Bitcoin, which involves a mining process that consumes large amounts of energy. If Gensler is right, Ethereum’s historical change means that the asset will now be treated as an investment contract.
As a result, it may be subject to securities laws. Gensler has often said that Bitcoin is not a security, but EthereumIt has always remained silent about whether or not it is a security.
According to the WSJ, the SEC official did not specifically mention any cryptocurrency when commenting on staking and PoS coins. But the head of the SEC made the aforementioned statements on the same day that Ethereum switched to proof-of-stake (PoS).
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Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.