Proof-of-Stake Tokens Could Be Securities, SEC Chair Gensler Suggests

• U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler believes that proof-of-stake tokens could meet the definition of securities under the Howey Test, thus bringing them under his agency’s regulatory authority.
• Gensler argued that securities laws could be triggered because investors anticipate a return when they purchase tokens underpinned by a proof-of-stake consensus mechanism.
• The SEC is engaging in a “turf war” with the Commodity Futures Trading Commission (CFTC) to determine which agency has regulatory power over various crypto assets.

Gensler Suggests Proof-of-Stake Tokens Are Securities

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler suggested again that tokens created through proof-of stake consensus mechanisms may meet the definition of securities under the Howey Test, bringing them under his agency’s regulatory authority.

Investors Anticipate Return on Investment

Gensler argued that securities laws could be triggered because investors anticipate a return when they purchase tokens underpinned by a proof-of-stake consensus mechanism. He noted that this expectation of return implies an investment contract, which is one of the core criteria for determining if something is a security according to the Howey Test.

SEC vs CFTC Regulatory Power

The SEC’s suggestion comes as it engages in a “turf war” with the Commodity Futures Trading Commission (CFTC) to determine which agency has regulatory power over various crypto assets such as ether and bitcoin futures contracts on regulated exchanges like CME Group and Bakkt, respectively. This turf war has been ongoing since 2018 when both agencies declared their respective jurisdictions over cryptos based on their classifications as either securities or commodities respectively.

Ether Reclassified as Security

Gensler had previously argued that ether might be a security after Ethereum’s transition to proof-of-stake last year, though he later clarified he was not making any official determination at the time. However, regulators did label ether as security during their investigation into decentralized finance platform Uniswap earlier this year – indicating there could be legal repercussions for platforms listing certain tokens without registering with SEC first or obtaining appropriate exemptions from registration requirements..

Crypto Regulation Continues To Evolve

As cryptos continue to evolve, so too do regulations surrounding them – potentially leaving users subject to further restrictions or liabilities relating to their use of these digital assets in different jurisdictions around the world