SEC Drops Ethereum 2.0 Investigation: What It Means for ETH’s Security Status

• On June 19, Consensys announced that the U.S. Securities and Exchange Commission (SEC) had concluded its investigation into Ethereum 2.0.
• Despite this, concerns remain within the industry about regulatory clarity.
• Ripple’s Chief Legal Officer, Stuart Alderoty, continues to question the implications of the SEC’s decision.

The SEC has closed its Ethereum 2.0 investigation, but questions about the regulatory framework for cryptocurrencies remain. Read on to understand the implications and industry reactions.

SEC Closes Investigation into Ethereum 2.0

On June 19, 2024, Consensys, a renowned blockchain technology firm, announced on its social media platform that the U.S. SEC had formally closed its investigation into Ethereum 2.0. This probe was originally part of the SEC’s efforts to evaluate whether Ether (ETH), the native cryptocurrency of the Ethereum network, should be classified as a security.

Background and Lawsuit

Back in March 2024, the SEC issued subpoenas to multiple companies as part of its attempts to categorize ETH as a security. Consensys responded by filing a lawsuit against the SEC and its commissioners in April, accusing the agency of attempting to over-regulate and control the future of cryptocurrency.

Filed in the Northern District of Texas, the lawsuit claimed that the SEC has been pushing for this classification against previous statements, including those from SEC Chair Gary Gensler in 2018, which indicated that ETH was not considered a security. Consensys argued that many firms had developed their business models based on this framework, and a sudden shift could have significant ramifications.

A Major Win for Consensys and the Ethereum Community

Consensys, founded by Ethereum co-founder Joseph Lubin, plays a pivotal role in the blockchain industry with products like MetaMask, Infura, Truffle, Quorum, and Codefi. On June 19, the company hailed the SEC’s decision to close the Ethereum 2.0 investigation, viewing it as a significant victory for the Ethereum community.

The company revealed that their request letter sent on June 7, which sought confirmation that the agency would close the investigation following the SEC’s approval of Ethereum ETFs in May, was a key factor in this decision. The approval had signaled that the agency viewed ETH as a commodity, not a security.

Industry Skepticism and Unanswered Questions

Despite celebrating the SEC’s decision, Consensys acknowledged that regulatory clarity remains elusive. Ripple CLO Stuart Alderoty congratulated Consensys but expressed concerns over unresolved questions, such as the classification of ETH and the implications for other services offered by Consensys, like MetaMask Swaps and Staking.

Pro-XRP attorney Bill Morgan also voiced his skepticism. He noted the difference between a regulatory letter and a judicial ruling, asserting that a definitive legal ruling would offer broader impact and clearer precedent. Morgan pointed out the ongoing ambiguity surrounding the SEC’s regulatory approach, emphasizing the need for more consistent and transparent guidelines.

Conclusion

While the SEC’s closure of the Ethereum 2.0 investigation is a positive step for Consensys and the Ethereum community, it does not eliminate all regulatory challenges faced by the blockchain industry. Consensys remains committed to advocating for clearer and more consistent regulatory frameworks, which are crucial for sustaining innovation and growth in the sector. The comments from industry leaders underline the pressing need for definitive legal clarity to navigate the rapidly evolving landscape of digital assets.