Are Solana and Polygon Safe Now That SEC’s Ethereum Investigation Is Over?

If
the
SEC
is
no
longer
investigating
Ethereum,
does
that
mean
other
similar
cryptocurrencies
are
off
the
hook?

The
U.S.
Securities
and
Exchange
Commission
on
Tuesday
informed
Ethereum
software
company
Consensys
that
it
has

dropped
its
investigation
into
“Ethereum
2.0,”
referring
to
the
blockchain
network’s
transition
to
proof
of
stake
nearly
two
years
ago.

This
combined
with
the
SEC’s
approval
of
Ethereum
ETFs
for
trading
in
the
U.S.
has
been
widely
perceived
as
an
admission
by
the
Commission
that
Ethereum
is
not
a
security,
which
in
turn
could
mean
that
other
proof-of-stake
coins
like

Solana

and

Polygon

are
also
not
securities.
But
legal
experts
who
spoke
with


Decrypt

have
warned
against
thinking
in
such
black
and
white
terms.

“I
expect
that
the
letter
has
little
to
no
impact
on
the
legal
classification
of
other
[proof-of-stake]
coins,”

Drew
Hinkes,
an
attorney
who
specializes
in
digital
assets,
told


Decrypt.
“Those
other
tokens
were
presumably
not
investigated
in
the
investigation
of

Ethereum
2.0

and
their
facts
as
to
creation,
distribution,
etc.
are
likely
different
from
those
of
Ethereum.”

Consensys
sued
the
SEC
earlier
this
year
in
a
preemptive
move
after
receiving
a
Wells
Notice,
which
typically
indicates
the
regulator
intends
to
bring
an
enforcement
action.
(Disclosure:
Consensys
is
one
of
22
investors
in
Decrypt.)
In
its
lawsuit,
Consensys
revealed
the
SEC
has
been
operating
under
the
assumption
that
Ethereum
is
an
unregistered
security
for
at
least
a
year,
partially
because
of
the
network’s
switch
to
proof
of
stake.

Proof
of
stake
refers
to
a
system
in
which
cryptocurrency
network
users
pledge
their
assets—in
this
case
ETH—in
order
to
participate
in
validating
transactions
and
securing
the
network.
Users
who
stake
are
then
rewarded
in
ETH
for
their
trouble,
with
yields
ranging
from
1%
to
4%
APY,
depending
on
the
staking
platform. 

Ethereum,
which
once
operated
much
more
like
the
energy-intensive
Bitcoin
blockchain,
completed
its
transition
to
proof
of
stake
in
September
2022
after
a
years-long
process.
At
the
time,
questions
immediately
arose
as
to
whether
staking
could
implicate
federal
securities
laws
in
the
United
States.
SEC
Chair
Gary
Gensler
said
he
believed

staking
could
run
afoul

of
the
law
because
“the
investing
public
is
anticipating
profits
based
on
the
efforts
of
others,”
according
to
the


Wall
Street
Journal.

The
SEC
has
now
apparently
changed
its
view.
But
even
if
the
Commission
is
no
longer
investigating
Ethereum,
it
could
proceed
differently
with
other
tokens,
says
Hinkes,
according
to
the
manner
in
which
those
specific
assets
were
initially
sold.
The
SEC
may
also
consider
factors
like
the
state
of
the
technology,
the
mechanics
of
its
block
validation,
and
more,
according
to
the
attorney. 

Matt
Corva,
a
lawyer
for
Consensys,
seemingly
concurs,

posting
yesterday

on
Twitter:
“We
don’t
know
[if
Polygon,
Solana,
or
other
coins
are
securities]
because
the
SEC
has
evaded
showing
their
homework
on
precisely
why
they’ve
now
concluded
that
Bitcoin
and
Ethereum
are
not
securities,”
he
tweeted.
“We
don’t
know
the
specifics
of
import
for
other
coins.”

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Other
legal
experts
are
similarly
befuddled
by
the
SEC’s
opaqueness.

“The
SEC
was
very
careful
in
the
language
it
used
in
its
letter,”
crypto
criminal
defense
lawyer

Carlo
D’Angelo

told


Decrypt.
“Without
a
more
specific
statement
from
the
SEC,
or
a
definitive
ruling
from
a
court,
it
remains
unclear
how
the
agency
views
ETH
and
other
[proof
of
stake
networks].”

While
the
end
of
the
Ethereum
investigation
might
not
be
a
carte
blanche
for
proof-of-stake
coins,
one
expert
believes
it’s
a
good
building
block. 

Sebastian
Heine,
head
of
risk
and
compliance
at
institutional
staking
company
Northstake,
claims
it
does
“strengthen”
some
cases,
but
every
coin
is
“too
individual”
to
make
sweeping
statements.
“The
SEC
is
still
very
crypto
negative
so
there
shouldn’t
be
any
high
expectations
from
the
SEC
acting
favorably
towards
other
proof-of-stake
coins,”
he
said.