Gensler Maintains Stance That Proof-of-Stake May Be Defined as Securities

According to recent reports, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has reiterated his belief that tokens based on the proof-of-stake consensus mechanism could be defined as securities under the Howey Test. This, in turn, would bring them under the purview of the SEC’s regulatory authority. Gensler explained that securities laws could apply because investors expect a return on investment when purchasing such tokens. He advised token operators to ensure compliance and encouraged intermediaries to do the same. His comments were made following a commission vote and were reported by The Block.

Gensler’s remarks came after reporters asked him for his views on statements made by Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), the previous week, where he argued that ether, the second-largest cryptocurrency by market capitalization, is a commodity and should be regulated by his agency. The two regulatory bodies have long been at odds over which should have the final say in regulating the cryptocurrency markets.

Gensler, who has been hesitant to relinquish control or give up the possibility of future control over any cryptocurrency other than bitcoin, including ether, has maintained that most of the thousands of existing cryptocurrencies are securities. He suggested in September 2022, after the Ethereum blockchain’s upgrade to proof-of-stake, known as the Merge, that proof-of-stake tokens could be considered investment contracts and be subject to securities laws.

Recently, Gensler’s argument that proof-of-stake tokens are securities gained support from an unexpected source: the New York Attorney General’s Office (NYAG), which filed a lawsuit against crypto exchange KuCoin, arguing that the Seychelles-based exchange is violating U.S. securities laws by offering tokens, including ether, that meet the definition of a security without registering with the appropriate regulatory bodies. In that case, it was the state AG’s office.