When the Securities and Exchange Commission filed a federal lawsuit on Monday Against Crypto Influencer Ian Ballina For failing to register a cryptocurrency as collateral prior to the launch of the 2018 initial coin offering (ICO), everything initially looked as usual: the SEC, for yearsFiling civil lawsuits against individuals and organizations for unregistered submissions ICOs.
Then the eagle-eyed observers read a little in the fine print.
In a bold and perhaps unprecedented move buried in Section 69 of the lawsuit, the Securities and Exchange Commission today argued that it had the right to sue Ballina not only because his case involved transactions that took place in the United States, but also, essentially, Ethereum The network falls under the jurisdiction of the United States government.
in that complaintThe regulator noted that the ETH sent to Balina “has been validated by a network of nodes on the Ethereum blockchain, which is more heavily accumulated in the United States than in any other country.” Then the Securities and Exchange Commission concludes: “As a result, these transactions took place in the United States.”
The Securities and Exchange Commission (SEC) appears to note that with more Ethereum validation nodes currently operating in the US than any other country, everybody Global Ethereum transactions should be considered of US origin. Currently, 45.85% of all Ethereum nodes operate from the US, according to Etherscan. The second highest density of knots is found in Germany, at only 19%, by comparison.
“Say it enables [the SEC] To characterize doing business on the Ethereum blockchain as doing business on a US exchange, University of Kentucky law professor Brian Fyre said Decrypt. Which is convenient from their organizational point of view. It makes things a lot easier.”
If the Securities and Exchange Commission (SEC) is to classify activity on Ethereum similar to that on Ethereum In the US stock market, this means that the regulator is claiming jurisdiction over all activities on the ostensibly decentralized Ethereum network. Such a development would represent a significant escalation of the Securities and Exchange Commission’s role in overseeing all of Ethereum, especially when the vast majority of NFT and DeFi activity Happens – and cryptocurrency as a whole.
Fire noted that the language in today’s complaint has no legal weight, and because of the nature of the SEC’s lawsuit against Ballina, it is unlikely that the court will consider this particular case. But this does not mean that the statement has no meaning.
“I think they might be trying to get their view of what Ethereum is and how it works in the legal ecosystem,” Fire said. Decrypt. “It says to the Securities and Exchange Commission, ‘This whole financial business is in the realm of the things we regulate, so we will regulate everything. “
Fyre believes that such a full claim to jurisdiction over the entire Ethereum ecosystem is unprecedented.
“It’s the first time I’ve seen the SEC really define how it understands the Ethereum ecosystem to work, and why it thinks it falls within the scope of what the SEC regulates,” he said.
Last week, the hours after Ethereum successful integration To the proof-of-stake consensus mechanism, Chairman of the Supreme Education Council Gary Gensler’s glimpse The transition could bring the network closer to the definition of security in the eyes of the government.
After testifying before the Senate Banking Committee, Gensler offered his view on how to interpret a “bet” (ie pledging assets to a crypto network in exchange for negative rewards) as an indication that an asset qualifies as collateral under the so-called Howey test, although he did not address Any cryptocurrency or network given by name.
Fyre believes that this statement’s proximity to today is no accident.
“[Today’s language] It seems quite consistent with what Gensler meant in his statement […] Fire says the SEC considers all of this to be securities and will therefore make regulatory decisions with respect to the entire ecosystem.
Instead of dealing with a simple case, the SEC is trying to use this to set a precedent, claiming that ENTIRE CRYPTO is under the jurisdiction of the SEC.
This is a totally unacceptable transgression and will have to be repelled vigorously.
Adam Cochran (@adamscochran.eth) (@adamscochran) September 19, 2022
Under Gensler’s leadership, the Securities and Exchange Commission (SEC) has not taken a formal position on Ethereum, despite leadership within the committee under the previous administration stating that Ethereum was “Enough decentralization“And therefore not a guarantee. But if the SEC claims that Ethereum is an unregistered security, Fyre suspects the courts will stand in the way.”
“I can totally see the judges accepting that, for sure: Ethereum is pretty much based in the US, so much so that it runs on a bunch of computers, and a bunch of those computers are in the US,” Fire said. “These are events that take place in the United States. No problem.”