U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler is doubling down on his opinion that proof-of-stake tokens could meet the definition of securities under the Howey Test, thus bringing them under his agency’s regulatory authority.
Speaking to reporters after a commission vote on Wednesday, Gensler said securities laws could be triggered because investors anticipate a return when they purchase tokens underpinned by a proof-of-stake consensus mechanism. The Block first reported the news.
"Whatever they're promoting and putting into a protocol, and locking up their tokens in a protocol, a protocol that's often a small group of entrepreneurs and developers are developing, I would just suggest that each of these token operators ... seek to come into compliance, and the same with the intermediaries,” Gensler said.
According to The Block, Gensler’s remarks came after reporters asked him for his thoughts on statements made by Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), last week, arguing that ether is a commodity and should be regulated by his agency.
The two regulators have long been at odds over which agency should take precedence in regulating the crypto markets. Gensler has said that bitcoin is a commodity but has been reluctant to relinquish control – or, at least, the possibility of future control – over any other cryptocurrency, including ether, and has claimed that the “vast majority” of the thousands of existing cryptocurrencies are securities.
In September 2022, after the Ethereum blockchain upgrade to proof-of-stake known as the Merge, Gensler suggested that proof-of-stake tokens could be investment contracts that subject them to securities laws.
Last week, Gensler’s argument that proof-of-stake tokens are securities got an unexpected assist in the form of a lawsuit filed against crypto exchange KuCoin by the New York Attorney General’s Office (NYAG). In the suit, the AG argued the Seychelles-based exchange is violating U.S. securities laws by offering tokens, including ether, that meet the definition of a security without registering with the proper regulatory bodies – in that case, with the state AG’s office.
Despite Gensler and Behnam’s public back-and-forth, the NYAG suit is the first time a regulator has claimed in court that ether is a security, albeit in a state court rather than a federal court.
Read more: What Happens if Ether Is a Security?
CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.