The magazine Fortune reports that several companies have been approached by the SEC as part of an investigation targeting the Ethereum Foundation.
The Ethereum Foundation in the viewfinder
The SEC has reportedly requested financial documents relating to transactions with the Ethereum Foundation, co-founded in 2014 by Vitalik Buterin, Gavin Wood and Joseph Lubin.
The foundation operates thanks to funds raised during a scandalous ICO during which 60 million pre-mined ETH were sold to a few hundred insiders for a handful of figs ($18 million).
Another six million ETH were paid free of charge to a few dozen early contributors. And finally, an additional six million ETH went to the Ethereum foundation which is located in Switzerland, in the Zug valley.
On this subject, don’t miss our article Bitcoin vs. Ethereum which compares the two monetary emission systems.
In its 2022 annual report, the Ethereum Foundation describes itself as:
“Not a tech company, not a normal nonprofit.” Just as Ethereum requires new concepts and technologies, it has given rise to new types of organizations. We are on the frontier of a new type of organization: one that supports a blockchain, without controlling it. »
“Without controlling it”… It is not reassuring that this needs to be clarified. The move to Proof of Stake – which essentially gives power to the richest – has not helped matters.
And let’s not talk about staking companies like Lido. This centralization should get worse given the latest proposals from the essential Vitalik.
Ethereum: Security or Commodity?
According to information from the magazine Fortune, the SEC investigation began shortly after the transformation into Proof of Stake (September 2022). After a break to deal with Bitcoin ETFs, the investigation has resumed in recent weeks.
According to the three sources who spoke to Fortune, the SEC intends to use PoS to define Ethereum as a “security”. This is a question which has not yet been definitively decided by American justice.
There is a consensus on the fact that bitcoin is a commodity, like gold or cocoa. As a result, bitcoin comes under the supervision of the CFTC (Commodities and Futures Trading Commission).
On the other hand, Gary Gensler believes that the vast majority of other cryptocurrencies are “securities” falling under his jurisdiction.
Although the SEC has ruled in this direction in recent legal cases, the legal status of Ethereum is still unclear.
Former SEC Director William Hinman, for example, declared in 2018 that Ethereum “didn’t look like security.”
But everything changed following the transition of Ethereum to PoS in 2022. The president of the SEC has since strongly suggested that any cryptoasset using the Proof of Stake system falls under the law on securities.
Is the ETF in trouble?
Defenders of Ethereum move forward that the SEC has already decided by giving the green light to Ethereum ETFs backed by Futures. However, it should be remembered that requests for futures contracts backed by Ethereum explicitly stipulate that Ethereum “could in the future be classified in the ‘security’ category by the SEC.”
The legal director of the Coinbase exchange went there in his little thread on X to argue that Ethereum should benefit from the same legal status as bitcoin:
Faced with this uncertainty, some companies are taking the lead. This is the case of Prometheum which announced its intention to offer custody services for Ethereum by choosing to place itself under the supervision of the SEC.
Regardless, we know that three of the 5 decision-making members of the SEC (including G. Gensler) are vehemently opposed to cryptoassets. Bitcoin ETFs were only approved after Grayscale won its lawsuit against the SEC.
Only a court ruling could force the SEC to validate an Ethereum ETF. And again, it will certainly have to go through the supreme court, which will take time. No trial is currently underway.
So there is a good chance that the SEC will reject ETF applications (deadline in May). Especially since it did not go back and forth with BlackRock and Fidelity, which was the case for the Bitcoin ETFs approved in January.
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