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Trade Group Asks U.S SEC Not to Classify Ethereum as a Security

As the U.S SEC works to classify and regulate cryptocurrencies, ICOs, and related businesses proponents are arguing their case for softer regulation for Ethereum.

The Venture Capital Working Group consists of lawyers and representatives from venture capital companies Andreessen Horowitz and Union Square Ventures. The group met with officials at the U.S Securities and Exchange Commission (SEC) on March 28th, 2018, to discuss initial coin offering (ICO) tokens, but its since been revealed the group put forward a specific case for the classification of Ethereum.

According to reports, the venture capital group made a plea for the agency to provide “safe harbour” to certain cryptocurrencies. It argued that Ethereum “has become so decentralized that it should not be deemed a security.”

Under U.S law Ethereum does have many of the characteristics of a security, however the group’s proposal argued that tokens should not be considered securities if the network behind them achieves “full functionality” or full decentralization. Full decentralization occurs when a token creator no longer controls the network.

Andreessen Horowitz and Union Square Ventures are heavily invested in cryptocurrencies. Andreessen backs a number of ICOs and the exchange Coinbase. Union Square Ventures holds stakes in Protocol Labs and cryptocurrency hedge fund Polychain Capital. Both firms also contributed to a recent round of funding for the CryptoKitties ICO.

Using their combined influence via the Venture Capital Working Group the two companies asked the SEC to classify more ICOs as utility tokens rather than securities, or investments.

SEC Chairman Jay Clayton believes that most ICO tokens are securities and that ICO issuers should comply with significant regulatory restrictions. Clayton gave an example of the difference between utility tokens and those that should be securities in a recent speech:

“For example, a token that represents a participation interest in a book-of-the-month club may not implicate our securities laws, and may well be an efficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of those books to token holders. In contrast, many token offerings appear to have gone beyond this construct and are more analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networks all to come.”

Reports state that the arguments failed to sway the SEC and it’s as yet unclear as to whether the SEC will continue to classify Ethereum as a security, based on its origins from an ICO, or whether it will view Ethereum based on its current characteristics.

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