Joseph Lubin, the co-founder of the Ethereum Foundation, spoke out at the Collision tech conference in New Orleans yesterday. The event takes place amid reports that federal regulators are now probing ETH to determine whether or not it should be classified as a security.
Lubin riposted that the Foundation is “absolutely unconcerned about the current discussions,” Business news platform The Street reported May 1.
“We spent a tremendous amount of time with lawyers in the U.S. and in other countries, and are extremely comfortable that it is not a security; it never was a security… many regulators that matter understand what Ethereum is.”
Yesterday, the Wall Street Journal reported that ETH is now in a regulatory “gray zone,” citing sources familiar with the matter. The WSJ’s sources raised particular concern over ETH’s first distribution in 2014, when the foundation raised over 31,000 BTC (then worth $18.3 mln), in one of the crypto industry’s first Initial Coin Offerings (ICOs).
The funds were then used to develop the Ethereum platform, and some regulators reportedly consider that investors were likely to have bought into the launch anticipating the asset would rise in value, thus being led to expect a profit based “on the efforts of others.”
This would clinch the argument for the investment counting as a security under the 70-year old Howey Test, meaning the foundation was legally bound to register the sale with the U.S. Securities and Exchange Commission (SEC) back in 2014.
Lubin countered this yesterday, stressing that Ethereum would in fact fail the test because its investors share a stake in a common enterprise:
“[With] all these different actors providing their resources to run the platform, you need to pay them for [doing so]… This is a way of accessing a shared comput[ing] resource.”
The argument that Ethereum is by now sufficiently horizontally established to disqualify it from a securities classification has been mentioned by influential former U.S. government regulator Gary Gensler. He considers the fact that the coin is now mined may help ETH’s case. Gensler did, however, reiterate the possibility that the presale itself was “noncompliant.”
ETH’s trading price took as much as a 6% hit yesterday, but it has since recovered, trading around $680 to press time.