ReportWire

Tag: ConsenSys

  • SEC, Gary Gensler Viewed Ethereum as a Security for Over a Year, New Filings Reveal

    SEC, Gary Gensler Viewed Ethereum as a Security for Over a Year, New Filings Reveal

    While Bitcoin has been recognized as a commodity, the same cannot be said for Ethereum’s status, which has been more ambiguous due to its initial coin offering (ICO) in 2014.

    However, a new report suggests that the Securities and Exchange Commission (SEC) and its chairman, Gary Gensler, seem to have believed that Ethereum is an unregistered security for a long period of time.

    SEC and Gensler’s Beliefs Exposed

    According to the latest FOX report, court documents filed by Consensys on April 29 stated that the SEC and Gensler seem to have believed for at least a year that Ether was an unregistered security and has been trading in violation of current federal regulations.

    The latest development follows Consensys filing an unredacted complaint against the agency in a Texas federal court in response to receiving a “Wells notice,” which outlined the SEC’s plans to sue the Ethereum software firm for alleged violations of federal securities laws.

    The filing indicated that the SEC began an investigation dubbed “Ethereum 2.0” due to its belief that potential sales of certain securities, including Ether, had occurred since at least 2018. If the asset were deemed a security by the Gensler-led SEC, it would contradict previous guidance given by former Chairman Jay Clayton.

    In a now-infamous 2018 speech, the then-director of Corporation Finance Bill Hinman said that Ethereum, like Bitcoin, was not a security, which led the industry to believe the SEC would not regulate the top two cryptocurrencies, citing “sufficient decentralization.”

    However, a year later, the Commodity Futures Trading Commission (CFTC) classified Ether as a commodity. Consensys, in its lawsuit, emphasized that it built its business under this regulatory clarity.

    New filings reveal that the five-member commission approved the “Ethereum 2.0” investigation on April 13, 2023, just five days before Gensler appeared before the House Financial Services Committee, where he avoided questions from committee Chairman Patrick McHenry regarding Ethereum’s regulatory status.

    The launch of the investigation was marked by unusual secrecy. The FOX report even claimed that the subpoena recipients were instructed to sign confidentiality agreements to receive information about the probes’ progress. It’s unclear why the SEC maintained such secrecy.

    Consensys’ Lawsuit Against SEC

    Consensys filed a lawsuit against the SEC last week regarding its handling of Ethereum regulation. The company claimed that the regulatory watchdog has classified Ether as a security and has targeted the firm’s Metamask software.

    The complaint also mentioned that the SEC staff sent Consensys a Wells notice earlier this month, indicating the agency’s intention to take enforcement action. Consensys has maintained that it has cooperated with the SEC and even provided over 88,000 pages of documents in response to multiple subpoenas over the past year.

    Consensys also argued that any investigation stemming from Ether being deemed a security would violate the company’s Fifth Amendment rights and the Administrative Procedures Act.

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  • DeFi Oversight: Consensys Advocates for Nuanced Approach Following IOSCO’s Report

    DeFi Oversight: Consensys Advocates for Nuanced Approach Following IOSCO’s Report

    As different jurisdictions gear up for regulations on the digital asset sector, DeFi remains a tricky subject.

    The International Organization of Securities Commissions (IOSCO) had recently weighed in on the matter and recommended that governments should identify the “Responsible Person” behind ostensibly decentralized finance applications and subject them to regulatory oversight similar to conventional financial market participants.

    Prominent blockchain software company – Consensys – has encouraged the global standard setter to clarify that some DeFi arrangements may have no “Responsible Person.”

    Consensys Weighs in on “Responsible Person”

    In a recent blog post, Consensys argued that IOSCO’s recommendation seems to presume that, in any given DeFi arrangement or activity, it is always possible to identify a Responsible Person who could be subject to regulatory obligations. It implies that decentralized systems either don’t exist or shouldn’t.

    This presumption, limiting online innovation to centralized models, is concerning, according to Consensys, which then asked IOSCO to acknowledge that certain DeFi setups lack a “Responsible Person,” as the EU does in exempting “fully decentralized” setups from MiCA regulation.

    Consensys admitted that the line between centralized and decentralized finance is more of a spectrum than a strict boundary but said that IOSCO’s recommendation oversimplifies this distinction.

    As such, taking a binary approach to identifying Responsible Persons “seems to encourage regulators to find such a party “at any cost.” Consensys advocated the need for a nuanced approach in determining Responsible Persons in DeFi. The firm added that regulatory obligations should align with the level of control, primarily targeting the centralized end of the spectrum.

    Various technical factors, such as governance, administrative control, oracle data, code availability, blockchain decentralization, and user interface diversity, must also be evaluated when assessing decentralization, according to Consensys, and regulators should refrain from imposing excessive obligations and, instead, consider a comprehensive range of decentralization factors to guide their decisions.

    Narrowing Down Definition of “Responsible Person”

    The definition of “Responsible Person” should be narrower, as applying traditional regulatory models doesn’t align with DeFi. The broad definition risks assigning responsibilities to individuals who cannot effect regulatory changes, creating legal uncertainty and discouraging innovation. Consensys advises against rigidly identifying Responsible Persons, as this could hinder the path towards decentralization.

    Instead, the company proposes exploring alternative methods, such as incentivizing voluntary compliance, which promotes decentralization and reduces intermediary risks while allowing DeFi participants to contribute globally.

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