Ether Could Avoid Designation as a Security With Centralization Risk Easing, JPMorgan Says

Staking platform Lido’s share in staked ether has continued to fall, reducing concerns about concentration in the Ethereum network, the report said.

AccessTimeIconApr 4, 2024 at 4:48 p.m. UTC
Updated Apr 4, 2024 at 4:51 p.m. UTC
  • JPMorgan said that Lido’s share in staked ether has continued to fall, reducing concentration concerns.
  • This has raised the chances that ether will not be designated as a security, the report said.
  • Tokens on a sufficiently decentralized network are no longer considered securities.
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  • Staking platform Lido’s share of staked ether (ETH) has continued to fall, which should reduce concerns about concentration in the Ethereum network, raising the chance that ETH won't be designated as a security in the future, JPMorgan (JPM) said in a research report on Wednesday.

    “The share of Lido in staked ETH has decreased further from around one third a year ago to around a quarter at the moment,” analysts led by Nikolaos Panigirtzoglou wrote.

    The Hinman documents, which were released last June, “revealed the role of network decentralization in the SEC’s thinking on whether a digital token should be classified as a security or not,” the analysts wrote.

    JPMorgan notes that officials from the Securities and Exchange Commission (SEC) had acknowledged in the past that “tokens on a sufficiently decentralized network are no longer securities as there is no controlling group in the Howey sense.”

    The Howey Test relates to the U.S. Supreme Court case to determine whether a transaction qualifies as an investment contract. If a transaction is considered to be an investment contract, it’s classified as a security.

    The recent Dencun upgrade should “help Ethereum to increase its dominance against alternative layer 1 blockchains and to recapture the lost market share due to previous scalability issues,” the report added.

    Read more: Ethereum Could Face ‘Hidden Risks’ From Ballooning Restaking Market: Coinbase

    Edited by Aoyon Ashraf.

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    Will Canny is CoinDesk's finance reporter.