The Merge: SEC lawyers Have a Very Rough Understanding of Crypto

The Merge: Ethereum and its long-awaited migration from its current “Proof-of-Work” consensus mechanism to a “Proof-of-Stake” system finally happened. A process that is supposed to look seamless from the user’s side nevertheless carries consequences in the legal aspect. The “toponomy” of the market is going to alter as well. And it’s not certain if everyone will benefit from these changes.

ETH is too significant to be untouchable

This is primarily the fact that with ETH now going Proof of Stake (PoS), most people will be staking with custodians, due to the simplicity and the fact that they don’t have 32ETH. In this way, large companies will have a majority share over the network. Thus it will be possible for the regulator to reach them and prohibit them from validating individual transactions (censorship), which will lead to the fact that such transactions will be confirmed slowly. 

But it should primarily be a problem of confirmation speed, as there will always be some validators who will subsequently confirm the transaction.

ETH, as the most important network for DeFi, would be the main lever for regulatory policy. Tokens such as USDC and many others contain blacklisting and blocking mechanisms at the development level, as opposed to the DeFi market in general. It makes sense that validators and the MEV market will play the role of leverage tools. But in the short term, this is more of a scare since there are too many miners, and no one cannot control this process at a reasonable cost. 

Regarding it all, regulators may intend to oblige those node validators who operate under jurisdiction to implement the AML procedures for the transactions they validate. 

The merge puts it in the SEC crosshairs

US Securities and Exchange Commission chairman Gary Gensler said in a statement on Sept. 15 that staking-based cryptocurrencies are very likely securities that should be regulated by the agency. This sounds like trouble for Ethereum. The SEC also claims that it has jurisdiction over ETH transactions b