HomeCoinsEthereumAttempting to Regulate Ethereum Staking and Facing New Legal Challenges: SEC Chairman...

Attempting to Regulate Ethereum Staking and Facing New Legal Challenges: SEC Chairman Gensler’s Bank Shot 2024

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The SEC’s attempt to take legal action against MetaMask faces an uphill battle

SEC Chairman Gensler Takes a Shot at Ethereum Regulation

If you’ve played a casual game of pool, you’re familiar with the situation where the ball you wish to sink has no direct path to the pocket, and you’re forced to try a more elaborate shot that involves banking it off one or more of the sides. It’s a great feeling when it works and the ball goes in. The trouble is most of the time it doesn’t. This is the situation SEC Chairman Gary Gensler now finds himself in as he seeks to exert jurisdiction over Ethereum, which many feel slipped away from the agency’s purview years ago.

The Regulatory Bank Shot

The second-biggest blockchain, which went live a decade ago, is largely decentralized. When a small group of people arranged to issue tokens for sale shortly after its launch, the SEC could have made a plausible case Ethereum was a securities offering. But that ship has long since sailed, so Gensler is trying the regulatory version of a bank shot.

Legal Battle with Consensys

This has become apparent in the SEC’s recent efforts to go after those engaged in staking, a process that Ethereum implemented in late 2022, and that replaced energy-intensive mining with a new model for verifying transactions on the blockchain. That model entails trusted nodes called validators, which receive modest rewards for updating the chain, and that require people to post collateral to ensure they are behaving honestly. If they try anything funny, they get “slashed” and lose that collateral.

It’s a clever model that serves to maintain the blockchain in an energy-efficient manner and has worked well as Ethereum has continued to attract new projects and developers around the world. It’s just how Ethereum works. Under Gensler, however, the SEC’s lawyers have attempted to seize on staking as proof the blockchain’s tokens are securities in order to try to stuff the Ethereum toothpaste back in the tube.

Legal Showdown

In any case, his legal theory will now be put to the test as crypto giant Consensys yesterday sued the SEC to fend off the agency’s attempt to regulate the staking service offered by its MetaMask wallet. The company is not only asking the court to force the SEC to stay away from MetaMask but to leave all Ethereum projects in peace once and for all. This doesn’t mean Consensys is saying those who make money on staking should pay no tax—that’s an issue for the IRS—but rather that the SEC has no legal authority to touch Ethereum in the first place.

These sorts of things are unpredictable but, at first glance, it’s hard to see how the SEC wins in court. Perhaps Gensler is very good at pool and thinks he can make the legal version of a tough bank shot. Or maybe he’s just taking a shot and relying on blind luck that it will work.

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