Does Ethereum (ETH) Risk Becoming a Security After Transition to PoS ETH 2.0?

The debate around security regulations in the US has hit the peak with the Ripple-XRP lawsuit that has now been aggravated by SEC’s lawsuit threat to Coinbase over an unreleased stablecoin lending services. Now with the XRP lawsuit nearing towards a possible end, Ethereum’s security status has become the biggest deabte especially with former SEC Director William Hinman’s deposition. Hinman during his tenure has claimed that Ethereum over the years has turned into an asset class even though it qualified as a security in early stages due to ICO.

Many market analysts and XRP proponent believe Ethereum was given a free pass by the SEC in lieu of personal gains of then executives in the commission. Ethereum is currently working on a Proof-of-Work (PoW) blockchain and scheduled to transition to a Proof-of-Stake (PoS) ETH 2.o. Looking at SEC’s current focus on bringing the defi and PoS market under regulatory guidelines, Ethereum fear loosing its non-security tag after transition to PoS.

The Ripple lawsuit was filed in December last year, just days before former SEC-chariman Jay Clayton’s departure. Now, Gary Gensler, the current SEC chief has continued Clayton’s legacy in maintaining a passive stance against the crypto market especially PoS based crypto products such as Defi. However, SEC and Gensler refused to call Ethereum a security despite majority of the Defi market running on top of it. This has perplexed many in the industry and even mainstream media has started to question SEC’s dubious stance.

@CGasparino 👀👀 from July 2021 – and the SEC told you they consider ETH sooooo different from XRP because the network is decentralised, without key central actors – lol

Btw, ripple operate something like 10% or less of the XRP nodes #XRP #RIPPLE #CRYPTO

— here4xrp (@John35544781) September 18, 2021

Will SEC’s Clampdown on PoS Make Ethereum a Security?

A Twitter handle that goes by the name of Digital Asset Investor Researcher pointed towards the 2018 statements made by Hinman on Ethereum claiming the blockchain has been developed and has enough centralization to deem it as a non-security. However, its transition to PoS could come back to haunt the decentralized status.

Whistleblower Alert!🚨 I want my reward. Ethereum 2.0 is a security. A security can become a non security(Eth 1.0) and then transform back into a security.(Eth 2.0) You can't coordinate something that's decentralized. @CGasparino @JohnEDeaton1 @GaryGensler pic.twitter.com/f1WGiHnJdG

— Digital Asset Investor Researcher/Wild Speculator (@digitalassetbuy) September 17, 2021

Many existing lawmakers in the SEC has also called for clarity on the Securities law in the state, claiming the current regulations are quite obscure to bring crypto market under it. Senator Pat Toomey who voted for the controversial crypto amendment in the Infrastructure bill has also sought clarity from Gensler calling regulations by enforment would kill domestic market.

Chairman @GaryGensler and the SEC must lay out clear guidelines on what cryptocurrencies they view as securities. Regulation by enforcement is extremely objectionable and will kill domestic innovation.

Watch my full interview with @SquawkCNBC. pic.twitter.com/DLqIFT3SGh

— Senator Pat Toomey (@SenToomey) September 15, 2021

Whether Ripple goes on to win the case or settle it outside the court, the chief regulatory body is currently in hot waters for its double standards. Ethereum might be the biggest looser here if the SEC decides to go ahead with its PoS crypto token enforments.