SEC’s Gensler Says Staking May Turn Crypto Into Securities

The Securities and Exchange Commission (SEC) has said Ethereum’s long awaited “Merge” could turn the cryptocurrency into a security, the Wall Street Journal (WSJ) wrote.

Gary Gensler, SEC chair, has said cryptocurrencies that “stake” their coins could now pass a test used by courts to determine if they’re securities. Called the Howey test, it looks into whether investors expect to a return from the work of third parties.

Staking is one way crypto networks could verify transactions, and it lets investors lock up their tokens for some specific amount of time to get a return. Gensler said that if staking services are offered, it becomes very similar to lending. The SEC has said that firms offering crypto-lending products have to register with the agency.

Issuers of securities have to file large amounts of disclosures with the SEC under laws passed in the 1930s with exchanges and brokers working on trading having to comply with strict rules that are meant to protect investors from conflicts of interests.

And there’s been a good amount of competition over jurisdiction for crypto regulation. One bill would give the CFTC authority to regulate them, which has consumer protection advocates worrying that the CFTC lacks resources and experience to look out for smaller investors, as it has less staffing than the SEC does.

Pat Toomey, a top Republican with the Senate Banking Committee, said recently that he thinks Congress might still be able to pass some kind of regulation this year.

Read more: Toomey Revives Call for 2022 Stablecoin Regulation

PYMNTS wrote that he still thinks there could be a bill that might alleviate a further breakdown like the $48 billion collapse of the Terra/Luna algorithmic stablecoin from May. But there have been setbacks from previous efforts.

Toomey said that he thought “the administration would like to get something done” and said that people now had the issue on their radar when they didn’t before.