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US Regulators Asked Not to Classify Ethereum as a Security: NYT Report

Last Updated March 4, 2021 5:06 PM
Josiah Wilmoth
Last Updated March 4, 2021 5:06 PM

A trade group representing venture capital firms that invest in cryptocurrencies has requested that US securities regulators provide formal assurance that ether, the native currency of the Ethereum platform, is not a security.

As CCN.com reported, the “Venture Capital Working Group” — comprised primarily of lawyers and representatives from Silicon Valley venture firms Andreessen Horowitz and Union Square Ventures — met with top officials at the Securities and Exchange Commission (SEC) in late March to make a plea for the agency to provide safe harbor to certain cryptoassets.

Initial reports about the meeting implied that the discussions had centered on initial coin offering (ICO) tokens, which have exploded in popularity over the past two years.

However, Nathaniel Popper of the New York Times  reports that Ethereum, the second-largest cryptocurrency, was also on the agenda.

As longtime readers will remember, Ethereum was bootstrapped prior to its launch through an ICO-style presale, in which the project’s founders raised approximately $18 million in Bitcoin and contributors received ether once the network — which now distributes new coins through mining — launched in July 2015.

According to the report, the Venture Capital Working Group’s proposal argued that Ethereum “has become so decentralized that it should not be deemed a security,” even though it bears many of the hallmarks of a security under US law.

Indeed, the proposal argued that the SEC should take decentralization into account when determining whether a token is a security, arguing that tokens should not be considered securities if they achieve “full functionality” or “full decentralization,” which occurs “when the token creator no longer has control of the network based on its ability to make unilateral changes to the functionality of the tokens.”

Sources familiar with the meetings have said that the SEC was not overly-amenable to the proposal, which would give tokens a broad exemption from the agency’s purview. However, it remains unclear whether the SEC will distinguish between projects that have launched recently and ones that have been functional for several years, as is the case with Ethereum.

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