The original text comes from CryptoSlate, written by Jacob Oliver, and compiled by Baize Research Institute.

The U.S. Securities and Exchange Commission (SEC) recently shocked the crypto industry by filing a lawsuit against Binance.

Binance faces 13 different accusations. The more important ones that can have a negative impact on Binance in the long term include: mixing customer assets with its own assets, allowing U.S. customers to use Binance Globe, and using virtual transactions to deliberately drive up the Binance.US platform. Trading volume.

Indictment: https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf

Binance has responded to the lawsuit: https://www.binance.com/en/blog/ecosystem/sec-complaint-aims-to-unilaterally-define-crypto-market-structure-8707489117122437402

Notably, the SEC clearly clarified in the lawsuit that it considers many of the tokens listed on Binance to be “unregistered securities,” including but not limited to Solana (SOL), Cardano (ADA), Polygon (MATIC), Coti (COTI), Algorand (ALGO), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Axie Infinity (AXS), Decentraland (MANA).

While these are the clearest words the SEC has used to date in clarifying its judgment on "unregistered securities," it once again avoids responding to an important question: Is Ethereum (ETH) a security? If so, why is the SEC silent on this? If not, then what exactly is Ethereum?

From Cryptocurrencies to “Cryptocurrency Securities”

The US SEC’s argument for designating the above-mentioned tokens as “crypto-asset securities” is in Section 8 of the indictment (pages 85 to 123). Each project is analyzed in turn, and it is obvious that they have a similar pattern: Initial Coin Offering (1C0) process, vesting of tokens, distribution to the core team and the promotion of profit generation through ownership of these tokens.

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However, Ethereum, which also has the above model, is not among them. SEC Chairman Gensler has been vague on whether Ethereum and its anchor coins, such as WETH, are securities. ETH is often held as an investment, suggesting it could be classified as a security, but it is also widely used as a medium of exchange across protocols on a daily basis, making it function more like cash.

Gensler has previously said that "all cryptocurrencies except Bitcoin" in the crypto market may be considered securities, but he declined to specify Ethereum. When asked whether Ethereum is a security, Gensler typically doesn’t answer.

The SEC’s reluctance to clearly classify ETH when it is so eager to impose the same requirements for other tokens is curious. why is that?

Is ETH a security in the eyes of the SEC?

This may be a matter of debate within the U.S. government.

Ethereum may fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), which has deemed BTC, ETH, and USDT to be commodities rather than securities. Not only are the two categories distinct from each other, but the overlap could spark a regulatory tug-of-war, so Gensler has taken a more public stance on Ethereum in an attempt to avoid infighting within the government.

Crypto media Protos once published an analysis that Gensler’s avoidance of Ethereum may be the result of the SEC’s inaction after the infamous “The DAO hacking incident”, which caused the Ethereum network to fork and brought the entire ecosystem to a halt. The system was put at risk, and many investors were in dire straits at the time. However, the SEC did nothing at the time and chose silence and inaction. Now Gensler finds himself in the awkward position of making up for his predecessor's oversight. Now that the Ethereum ecosystem has had several years to regain its credibility, retroactively declaring it an unregistered security would have disastrous consequences for investors.

In other words, protecting investors in this context means protecting them from their protectors.

Another reason Gensler might be reluctant to clearly classify Ethereum: He might not know.

Cryptocurrencies and the blockchain technology behind them are innovative and novel. They represent a fundamental shift in the way we understand finance and asset ownership, and as ecosystems like Ethereum evolve, they introduce many entirely new use cases.

Any new thing will be difficult to classify, and Ethereum does just that - it is "decentralized" enough and conforms to the "concept" of securities (investors, profit commitments). This is the core of why it is difficult to be regulated.

This regulatory ambiguity poses complex challenges for Ethereum, as progress in the crypto industry depends on obtaining clear legal definitions for Layer-1 tokens (such as Ethereum) that simultaneously serve as daily functions in their respective ecosystems. Medium of transaction and investment vehicle. Regulatory ambiguity poses significant obstacles, stifling potential, hindering mainstream adoption, and fueling uncertainty in a crypto industry rife with growth and innovation.

The dichotomy around cryptocurrencies (either securities or not) blurs the lines between different types of tokens and forces us to confront the inadequacies of existing legal structures. To move the crypto industry forward, regulators must address this delicate issue. The unique crypto industry requires equally unique rules.

The crypto industry needs meaningful regulatory progress

The path to comprehensive cryptocurrency regulation is currently blocked by two significant obstacles that must be urgently addressed to promote the responsible development of the industry.

First, the SEC must establish a formal stance on Ethereum. Given the SEC’s inaction when it had the opportunity to restrict Ethereum, it inadvertently created a scenario that put investors in a regulatory limbo. The SEC, as protector of investors, has a responsibility to provide some form of regulatory guidance—even if temporary—as a starting point. The lack of clear regulation is not only an inconvenience but also lacks necessary protections for the growing number of participants in the crypto market.

Second, an open discussion about the nature of cryptocurrencies is critical – a conversation that is conducted without “preconceived” notions, biases, or empty rhetoric. We often talk about making space to “have conversations,” but we have to admit that needing to have conversations and actually having them are two very different situations. Perhaps everyone in this industry—and those who pay attention to it—would benefit from practicing the latter.

risk warning:

According to the "Notice on Further Preventing and Dealing with Speculation Risks in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing and does not promote or endorse any business or investment behavior. Readers are requested to strictly abide by the laws and regulations of their region and do not Engage in any illegal financial practices.