Coinbase CLO Paul Grewal has shared new details about the U.S. Securities and Exchange Commission’s (SEC) internal documents regarding its investigation into Ethereum 2.0.
These documents are part of a Freedom of Information Act (FOIA) lawsuit that Coinbase has filed against the SEC. The release of these documents is critical, as they reveal the SEC’s internal discussions on whether ETH 2.0 should be classified as a security.
Coinbase CLO Breaks Down SEC Debate on Ethereum 2.0
Coinbase CLO Paul Grewal has listed some of the documents that were in the SEC’s “Vaughn index,” a list of nonproduced documents. These documents provide information about the extended discussions of the SEC concerning the regulatory nature of Ethereum 2.0.
A May 2022 article included a detailed look at the Howey test to evaluate whether Ethereum 2.0 meets the standards of a security. This could extend to whether Ethereum 2.0 is regarded as a security by the SEC, which would therefore attract other rigorous regulations.
Furthermore, according to Coinbase CLO, a February 2023 email with the title “RE Is Ethereum a Security” raises doubt over the categorization of Ethereum. For instance, this email, and several others from the year 2023 and 2024 show that even after Ethereum transitioned to the new version, known as Ethereum 2.0 which is based on a proof-of-stake protocol, the discourse at the SEC was not conclusive on how best to categorise Ethereum.
Timeline of the SEC’s Investigation
As per Coinbase CLO Paul Grewal, the SEC started investigating ETH 2.0 after it changed from proof-of-work to proof-of-stake, which changes its consensus mechanism. This led to doubts on whether Ethereum 2.0 would meet the threshold that defines it to be a security.
In April 2023, the SEC created a memorandum to facilitate the Commission’s decision to sanction the probe of ETH 2.0. This document could have provided an indication on how the SEC would formally proceed in its ruling on the future of Ethereum regulation.
Grewal also referred to other emails in February and April 2024 where some discussions on the legal actions with regards to Ether classification were also made. These communications indicate that the SEC considered various legal frameworks for Ether, including Q1 2024.
Coinbase Recent Regulatory Challenges
Coinbase has been an outspoken critic of what it views as the SEC’s unclear and inconsistent regulatory approach to cryptocurrencies under Gensler. Despite the US SEC dropping its lawsuit against the cryptocurrency exchange, it has recently faced a lawsuit from the state of Oregon. The Oregon lawsuit accuses Coinbase of violating state securities laws by offering unregistered securities.
In the latest statements, Grewal emphasized the need for the SEC to release documents that explain why Ethereum 2.0 might pass certain tests, like the “ecosystem” test, while other assets do not. This is part of Coinbase’s broader push to clarify cryptocurrency regulations.
The SEC’s handling of Ethereum 2.0 comes in the wake of controversies surrounding former SEC official William Hinman after they cleared him recently. Hinman, who was the SEC’s Corporation Finance Director, became a focal point of debate after he stated in a 2018 speech that Ethereum was not a security.
However, under acting chair Mark Uyeda and the incoming US SEC Chair Paul Atkins, the SEC’s regulatory approach, considered “regulation by enforcement’” is ending. The release of the internal SEC documents could potentially expose how the agency has handled similar cases in the past and help provide a clearer picture of its approach to regulating digital assets.
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