Heath Tarbert, chairman of the U.S. CTRC, voiced a warning that the coins that support proof-of-stake blockchain networks may ve be classified as securities.
In what seems to be an about-face, the Chairman of the United States Commodities and Futures Trading Commission (CFTC) Heath Tarbert has indicated that staked tokens could be classified as securities. Speaking at the Coindesk Invest conference in New York, he answered a question concerning Ethereum 2.0 which will be using proof-of-stake as a means for transaction confirmation. He said:
“We are thinking carefully about it.”
“I think America needs to lead [in crypto regulation],” added he.
As a regulator, I want to, at least, create an environment where innovation can flourish.”
This, of course, has created a situation where the cryptocurrency community now has space to grow. He also spoke of tackling the issue of token identification from a set of rules rather than from a one-size-fits-all approach.
This, of course, is contrary to the stand taken by the United States Securities and Exchange Commission (SEC) which employs the use of Howey’s test as a general yardstick for the definition of which tokens are securities or not. Generally, the SEC has also been targeting cryptocurrency projects which have made everyone within the crypto space to skeptical of the commissions’ approach to projects within the community.
The CFTC, however, has authority over futures and derivatives of commodities and has more than once explicitly stated that Bitcoin and Ethereum are commodities. The main issue, however, is Ethereum 2.0’s Proof-of-stake by consensus algorithm where the highest nodes that stake are the ones that get to confirm transactions for rewards within the blockchain.
The problem therein is that proof-of-stake may possibly violate the principles of Howey’s test some of which include the existence of a common enterprise and an investment contract between the two parties. Tarbert said:
“Mining is, by its very nature, more decentralized as compared to a stake which reduces energy costs by giving it just one validator or a line of validators.”
Also stressing on the identity and number of validators which will form the basis for the CFTC’s consideration.
While the cryptocurrency community in the Western world is worried about the lax attitude of regulators, those in the east are quite excited about China’s pro-blockchain stance which will create the environment for innovation.
Tarbet warned against the aggressive regulation of the crypto space.
“Clarity and consistency is the first step to leadership,” he said.
In addition to this, he said that everyone who is looking forward towards a new system of regulation should probably just forget about it citing the scope of authority of the CFTC which covers only futures and derivatives while the 50 states within the United States also have their regulatory oversight on the underlying commodities.
In essence, it might take a while before the regulatory framework adjusts itself to the existence of cryptocurrency tokens.