Coin Center Disagrees with NYAG’s Claims that Ethereum is a Security

Crypto advocacy group, Coin Center, maintains that Ethereum (ETH) is not a security, in opposition to the views of the New York Attorney General (NYAG) Letitia James. The NYAG argued in a recent lawsuit against Kucoin that Ethereum relies on third-party developers to generate profits for its holders and is, therefore, a security. The NYAG went on to label ETH as a “speculative asset” and grouped it with Terra (LUNA) and its algorithmic stablecoin TerraUSD (UST), which had collapsed.

Coin Center’s director of communications, Neeraj Agrawal, has refuted the NYAG’s claims and maintains that the think tank’s views on Ethereum have not changed. Agrawal stated, “Obviously, we disagree with the NYAG’s argument that ETH is a security. Coin Center will be monitoring the case and if there’s an opportunity to weigh in, we will.”

Coin Center first explained its reasoning for considering Ethereum not to be a security in 2018 through a blog post. The group argued that while Ethereum met one of the prongs of the Howey test when it was initially launched in 2014, the current iteration of ETH is not a security.

Under the Howey framework, a transaction is defined as an “investment contract” if a person “invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter, sponsor or other third party.” However, Coin Center argues that Ethereum is “too useful and too decentralized” to be considered a security. It further stated that the value of Ether and the functionality of the Ethereum network does not rely on the Ethereum Foundation, rather it flows from the efforts of thousands of unaffiliated developers, miners, and users.

Coin Center cautions against conflating the pre-sale and the running network and warns that this could lead to confused analysis, misunderstanding the technology or the law, or both.