Galaxy Researcher on Classifying Staked ETH as Security

Alex Thorn, who heads Galaxy Research’s Research department, has voiced concerns over the possibility that the Securities and Exchange Commission (SEC) might label staked Ether as a security. His apprehension comes amid rising expectations that the SEC might soon give the green light to Ethereum exchange-traded funds (ETFs). Thorn speculated that the SEC might attempt to find a delicate balance, distinguishing between Ether itself not being a security and staked Ether, or even “staking as a service ETH,” being categorized as a security.

According to Thorn, if the SEC does decide to approve an Ethereum ETF, this strategic move could align with previous court rulings. Such a decision would also be consistent with various SEC investigations and could allow for the approval of Ethereum ETFs while the SEC maintains its existing arguments and stated positions.

A community member responded to Thorn’s post, raising another concern about whether staking Ether (ETH) within an ETF could present liquidity challenges. This member speculated that such hurdles might complicate adherence to regulatory compliance requirements. Thorn acknowledged this concern, noting that lending ETF collateral usually comes with limits, which could serve as a parallel in this context. He mentioned that European exchange-traded products (ETPs) offer staking services, providing a point of comparison.

The SEC has a history of attempting to classify Ether as a security. This pattern has persisted, as shown in a recent report by Fox Business producer Eleanor Terret. According to Terret, court documents filed by Consensys on April 29 indicated that both the SEC and its Chair, Gary Gensler, had believed for at least a year that Ether was essentially an unregistered security.

On May 20, Bloomberg senior analyst Eric Balchunas highlighted that despite shifting opinions between approval and rejection, the odds of approving an Ethereum ETF were dramatically increased from 25% to 75%. This significant shift was based on “chatter […] that [the] SEC could be doing a 180″ on the matter as it became “an increasingly political issue.”

Thorn’s comments and the concerns he raised appear to be part of a broader debate within the crypto community. The implications of how the SEC classifies various forms of Ether could have substantial impacts on the market and regulatory landscape. It’s noteworthy that previously, similar strategic decisions by the SEC have influenced the market in significant ways.

Thorn’s observations serve as a reminder that regulatory bodies like the SEC can have nuanced positions that evolve over time. The distinction between different forms of the same asset, such as Ether versus staked Ether, could become critical in understanding and navigating the legal and regulatory framework surrounding cryptocurrency.

In the light of these developments, the crypto community continues to watch how the SEC’s decisions will unfold. Any new regulatory or approval actions regarding Ethereum ETFs will likely set precedents that could extend beyond Ether and impact the broader landscape of digital assets.

As the situation develops, stakeholders, including investors, legal experts, and crypto enthusiasts, will be keeping a close eye on the SEC’s moves and the ongoing dialogue about how best to regulate and integrate digital assets into traditional financial systems.