Are similar cryptocurrencies off the hook now that the SEC has dropped its investigations against Ethereum? Or has the SEC simply gone out to bother someone else?

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Major Ethereum development company Consensys announced that the Securities and Exchange Commission had dropped its investigation into Ethereum’s transition into a Proof of Stake Network, popularly known as Ethereum 2.0. 

This development, along with the approval of Ethereum Spot ETFs in the United States, has strongly communicated the SEC’s acceptance that ETH is not a security, a move that qualifies other PoS cryptocurrencies such as Polygon and Solana as not securities. However, law experts have hinted that the situation is not as easy as it seems, especially given that the SEC was evasive in its letter that notified Consensys about dropping the investigations.

Source: Tenor

Ethereum Is Not A Security Does Not Mean Solana, Polygon, and Others Aren’t

According to Attorney Drew Hinkes, who specializes in cryptocurrencies, the other tokens were not under the investigation of Ethereum’s proof of stake chain, and as such, their attributes, creation, and distribution may not relate to those of the largest smart contracts ecosystem.

After receiving a Wells Notice at the beginning of 2024 from the SEC, Consensys went ahead and sued the commission in a preemptive move that accused the regulator of assuming Ether was an unregistered security for over a year before the notice.

A Wells Notice is a letter by a government agency such as the SEC notifying a person that they could be in trouble for breaking the law. 

Source: Tenor

The recipient of the notice must respond with an explanation and share their side of the story. In this case, Consensys responded by filing a lawsuit against the SEC. However, despite the regulator dropping its investigations against Ethereum, Consensys has maintained it will continue with the lawsuit.

The debate about Ethereum as a security started when the blockchain switched from Proof of Work to Proof of Stake. At the time, SEC chairman Gary Gensler said staking would make Ether equivalent to securities because the investing party would anticipate interest based on the efforts of others.

With the commission apparently shifting its perspective that Ethereum 2.0 is not a security, questions have come up about whether the SEC will pursue corresponding tokens such as Polygon and Solana. 

What Will Determine Whether The SEC Terms an Altcoin As A Security?

As per Hinkes, the manner by which an altcoin initially sold its tokens, its state of technology, consensus mechanism when validating, and many other attributes will play an important role in determining whether the SEC categorizes them as securities or not.

The debate has also been fueled by the SEC’s lack of concrete reason as to why Bitcoin and Ethereum are not securities. Consensys Attorney Matt Corva wrote on X that not every company is capable of coughing out countless hours and millions of dollars to batter unlawful investigation.

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Several law experts have bashed the SEC for not providing a clear statement as to why it does not think Ethereum is a security, something that would have helped provide more clarity around other altcoins that may face similar investigations and charges.

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