The issue of classifying financial instruments as securities is very important because then they will face entirely different regulation and launch rules. Well, if the creators of the project have violated them, it means they will most likely be forced to close it down.

A similar situation happened with the blockchain project Telegram Open Network, whose creators announced it would shut down in May 2020. At the time, US regulators had just seen Gram tokens as securities, forcing the project’s representatives to return the funds to their investors.

How will Etherium be regulated?

Here is one of Gensler’s quotes in which he touched on the subject. The replica was published by the news outlet Decrypt.

We don’t engage in this kind of public discussion by discussing a single project or circumstance. You can’t give full legal advice on the subject during an interview. If you raise money from investors and they expect a profit based on the effort to promote the project, to sponsor it, it can be viewed within the framework of securities laws.

SEC head Gary Gensler

A security is a tradable financial asset that has a monetary value similar to a stock or bond, while meeting a certain legal definition set out in the so-called Howie test. Under US law, an asset meets the definition of a security if it is an investment of money in an ordinary business from which profits are expected based on that business.

Here is a recording of the conversation with Gensler. We recommend listening to it to get a better understanding of what is going on and if you can understand English by ear.

SEC officials have previously stated that they do not consider Bitcoin to be a security, but the financial regulator is putting pressure on other cryptocurrencies like XRP. In December 2020, the SEC sued Ripple, the company that issues the altcoin. That litigation is still ongoing, with Ripple representatives expressing a willingness to cause problems for Bitcoin and Etherium if Commission officials continue to consider XRP a security. The reason is sense of unfairness, because in their eyes XRP does not differ from already mentioned BTC and ETH. And in this case, that feeling overshadows common sense, because if Bitcoin and Etherium were to get into trouble by defending themselves in court, the Ripple team would surely receive a lot of criticism and hatred from the blockchain community.

Since 2018, the crypto-sphere has established the view that Etherium – like Bitcoin – will not be considered a security. Consequently, the industry’s second most capitalised project will not be subject to the strict regulation of such an asset class. As evidence of this, former SEC director of corporate finance William Hinman said in June 2018 that Ether had become “too decentralised” to be equated with equities.

In essence, the regulator's representatives did not have time to take up the project, and now it is too late to do so. On top of that, it's important to note that the representatives of Efirium were raising funding in Bitcoin, not dollars.

William Hinman, former director of corporate finance at the SEC

Under Gensler’s leadership, however, the Commission may change its mind about Etherium. He has previously claimed that thousands of cryptocurrencies from the field of decentralised finance based on Etherium operate as unregistered securities. And in general, after his appointment as head of the SEC, Gensler wants to fully address the issue of comprehensive regulation of the crypto industry, so it is unlikely that he will always take the most “favorable” position for crypto enthusiasts on the aforementioned issues.


We believe that the US Securities and Exchange Commission is unlikely to put any sticks in the wheels of Etherium and its developers. The project has indeed become too decentralised and the number of its investors is changing by the day. The situation is likely to remain the same, but there will still be serious oversight of new projects.

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