|
Original link: https://twitter.com/AdamLevitin/status/1550990967670554624 https://twitter.com/adamscochran/status/1551278224218488832 As the Ethereum merger date approaches, whether ETH, which has switched to a PoS mechanism, can be characterized as a security has once again become the focus of discussion. Recently, Adam Levitin, a law professor at Georgetown University Law Center in Washington, D.C., said that any blockchain network system that runs a PoS mechanism can be classified as a security for the following reasons: “Securities” include “investment contracts.” An “investment contract” was defined by the U.S. Supreme Court in Howey as an investment in a joint venture where the profit is expected to be “derived solely from the efforts of a third party.” Howey speaks of an investment of "money", but this has been interpreted to mean only an investment of value. Staking easily satisfies this element. The elements of a joint venture are also easily met with staking: the entire verification system requires the participation of multiple parties. This is crowdfunding (i.e. a more demanding interpretation of a joint venture: horizontal commonality). The expectation of profit is also very clear, and stakers receive staking rewards. This brings us to the final element: the profits are expected to derive “entirely” from the efforts of others. In Howey, the U.S. Supreme Court said “entirely” several times. If that is the criterion, then the pledger does not meet the test because the pledger is also a participant. But lower courts have largely interpreted the definition of "complete" from Howey, at least for something like a multi-level distribution pyramid, where participants do have to work hard to recruit more downlines. Basically, the appellate courts (Second, Ninth, etc.) interpret "entirely" to mean more likely "primarily" or "predominantly." The U.S. Supreme Court did not disagree. It discussed the issue in a 1975 opinion but did not take a position. Given that the contribution of any individual pledger relative to the sum of the efforts in the enterprise is likely to be quite limited, I doubt that the element of "wholly [= primarily] derived from the efforts of others" is met. However, none of this answers the thornier question of who is the “issuer” when you’re dealing with a decentralized system. But it’s part of the broader question of how to bring decentralized systems into a human-centered legal system.
However, venture capital partner Adam Cochran believes that the merged ETH is not a security for the following reasons: First, Howey tested three factors: an investment of money, in a common enterprise, and the expectation of profit from the efforts of others. As for the “money investment” point, ETH meets this requirement, after all, almost all risk assets, commodity services, and even Bitcoin meet this requirement. The latter two points are more controversial, and different courts have different measurement standards, many of which have never been adopted by the US Supreme Court. There are many disputes and schools of thought about the definition of "joint investment enterprise", such as horizontal commonality, broad vertical commonality, and strict vertical commonality. In terms of horizontal commonality, the court looks for the characteristics of proportional distribution of profits, or bundling investors' assets together through the pooling of funds. Specifically applied in ETH 2.0, the ETH you pledge is independent and bound to the node, unrelated to other pledged funds, and rewards and punishments are obtained based on the performance of your own node, and it does not affect other nodes, so it does not have horizontal commonality. Vertical commonality emphasizes the relationship between investors and issuers/promoters. For example, investors and issuers/promoters do not necessarily make the same profit and loss on ETH. However, the first challenge is that as a decentralized open source project, who are the issuers and promoters of the Ethereum network? More importantly, the people who first wrote the code for Ethereum are not the ones who currently run the network. Regarding the point of "expectation of profit from the efforts of others", some cases show that the core is "reasonable expectation of profit from the entrepreneurial or managerial efforts of others"; some cases show that profit cannot come from one's own efforts or services; this is a subtle but important distinction, and for staking, it again relies heavily on the proof of joint investment enterprise. The important question here is: what are you rewarded for? Why can you get rewarded when staking? In fact, there are two ultimate arguments. One is that you are rewarded for selling block space to users; this view can be regarded as a joint investment enterprise, but it does not come from promoters or issuers, because block space is formed in cooperation with validators, and what validators actually sell is the act of verification. Then the question is, whether the verification behavior of validators is "self-reliant", in fact, in previous cases, the SEC has indirectly given the answer, that is, the participation of validators in network verification is a substantial effort and is rewarded for it. In summary, of the three elements of the Howey test, the last two points are currently controversial for ETH. Although the model of "buy coins and stake to earn coins" looks very much like securities, if you look deeper, the funds for staking verification are not mixed with others, and the rewards are independent, which does not meet the second point; and the validator is rewarded through his own online verification efforts, which does not meet the third point. However, even if the SEC wants to identify ETH as a security, it has nothing to do with the transition of Ethereum to PoS.
|
