What would happen if the US SEC gets jurisdiction over Proof of Stake Protocols like the IC?

Last Thursday the head of the US SEC commented that any protocol that uses a staking algorithm, and that includes the IC, and now Ethereum would fail the Howe test, and therefore be required to register as a security.

This is basically a veiled threat at most modern blockchains, and if it were to happen, compliance would be quite difficult. Would it be enough to be outside the US to avoid this kind of state level censorship of a whole blockchain?

What could be done to comply, is it even feasible?

Here is a link to a related WSJ article, I’ve attached a screenshot for context:

WAGMI,

Frank

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I think that Dfinity would be treated quiet similar as a regular company and ICP would be like shares. Then Dfinity would have to disclose their financial statement every 3 months so investors would be able to make adequate DYOR before investing.
Although Dfinity is a Swiss foundation, since most of nodes are in USA, good chances are Dfinity would be seen and treated as a US entity.
Then, under US law, Dfinity would have to be very carefull with all their disclosures to protect investors from being misleaded.
All Dfinity insiders would have to disclose their stake and their transactions.
It is all about 2 things. Getting the taxes properly paid when applicable and protecting investors.
This would bring mass adoption and network effect much quicker and on a much bigger scale.
Personally, I really hope so. The sooner the better.
I respect other views on this.
EDIT to add: I don’t see it as a treat at all but as a bless.

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A contrarian view to the ones I’ve heard before, but thanks for explaining, so for well funded projects this could actually be good.

The counter argument is what about the small startups that would issue a token using the IC, they can’t afford to be a registered security, so this whole funding avenue would disappear in the US at least.

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I do not see myself as a contrarian stance, but will take it as a compliment.
I am against Scams,
Against Ponzi
I hate banks and governments with passion
I am all for transparency, disclosure, so investors and projects have all good and reliable information to make the right decision for either investing or developping on the choosen blockchain.
I am for insiders disclosure because they have information that normal people don’t.
I am for mass adoption and institutions adoption of crypto and blockchain
I don’t see this as this be contrarian.

And the SEC is the only way to get there. Dfinity will never disclose anything by themselves. And even less all their insiders.

For all the reasons above, and more, I truly welcome SEC.

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The SEC will barely do anything other than enforcing whatever dumb rules the octogenarian senators come up with, the government and wall street in general are littered with inside traders and if they get caught they get a slap on the wrist, but Tornado Cash gets shut down and its dev arrested shortly after, this is the SEC.

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Quite accurate @Zane, we are in agreement.

The problem we face is larger than the OFAC throwing the book at a Tornado Cash, the West is now increasingly censoring anyone they do not like, now that is basically not Woke.

@coteclaude I agree with the spirit of what you said, no one wants shady scammers in crypto, including myself. However, it’s naive to not see that BigFinance wants to stifle DAPPs and would prefer they did not exist, the SEC would not be beneficial to most crypto companies. I do hope it’s the CFTC that gets jurisdiction.

Whatever happens, there will be regulation, I hope it is light regulation, and not SEC led.

I agree while I welcome some regulations for exactly what @coteclaude spoke to, I also think in the west we may or at the very least have a tendency to label a branch of the government one thing, that really is an umbrella term for the various sub-categories of government agencies they throw at us. The SEC is a good example of this. However, we really should be more specific (myself included) when discussing specific agencies or branches. Especially, when it comes to obtaining jurisdiction, I’ll give you that.

I feel it may not fall to the SEC directly and fall to a subcategory like the CFTC, or at least I personally hope. I think it could use oversight, not so much regulation. Personally, I’d even be okay paying capital gains taxes if they leave the rules alone and just assist in the entire crypto space’s sustainability by providing the right oversight. I would prefer a hands-off approach, which it’s to stop inside trading, call out scam projects (for lack of a better way of saying it) and hold scam projects accountable to some degree. However, I think it is a slippery slope. The US has a tendency to say, “we’re here to help” when really what we are doing is saying, "we’re here to tax and regulate you and create further inequity in markets. So, I think they will need as you say Woke individuals to push back on their greedy little pocketbooks, and help set the right oversight or light regulations. Because cryptos are not stocks, they don’t really need regulation IMO they just need the right oversight or very loose regulation.

EDIT: I do think cryptos in general could help the economy overall, if not over-taxed. I am not against helping society in monetary ways. It is the way we in the US do have a tendency to do things. Obviously, well intended on the surface level and executed poorly.

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We agree 99% in everything you wrote @jsull9, the only exception being Woke.

Woke is an American political term used to highlight extreme progressive stands many Democrats have in the US, perhaps this is the best explanation I’ve found for the term online, merci or thank you to the French who took the time to explain it:

Well, we can agree to disagree. I do believe the term has been politicized almost militarized yes. However, it is not the term’s origins by any means. Cancel culture as well… Not what it has been weaponized as. It is a means to hold accountability. However, it can easily be misconstrued and used in various political debates as a way to platform or cater to their base. Yes, ill admit that.

EDIT: I would double-check the source as well. Wikipedia and unreliable outlets with no valid sources or references should be overlooked IMO. The “facts” in that article are almost all opinions and no factual evidence to support the claim. It’s one of my biggest issues with journalism and mainstream media sources/ online news journals. There need to be direct citations referenced in articles so people can fact-check the work and see where you are pulling data from. Otherwise, we could end up debating whether or not the world is flat or not… or if bleach can cure COVID-19

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The SEC claimed that Ethereum transactions should be considered as taking place in the United States since there are more nodes in the U.S. than in any other country. SEC lawsuit claims jurisdiction because ETH nodes are ‘clustered’ in the US

Even if they were in the majority, it would still be a stretch to claim Ethereum transactions take place in the U.S. itself.

Would that mean that Bitcoin should fall under the supervision of the European Union, since most of its nodes are currently located there?

And what would be the threshold percentage of say projectX nodes needed for the blockchain to be considered outside of U.S. jurisdiction? At the current time projectX would be considered unregulated security.

If the developers say of projectX wants to protect investors in the same way the SEC does, by using conventional means, then they would have to make suggestions that would allow them pave way for the SEC.Because it’s likely nothing would move till the SEC approves businesses.

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This is what I would consider a reliable source on what the US plans to do with digital assets. Personally, I think we are all just speculating until actual legislation is established. Meaning the fancy legalese that ends up being what over-complicates things and makes it worse if the language used isn’t proper or reflects the space and their actual intentions.

EDIT/ Update to my comments:

see US Department of Labor cautions 401(k) plan fiduciaries to exercise extreme care as they consider cryptocurrencies | U.S. Department of Labor

https://www.sec.gov/news/press-release/2022-78

FACT SHEET: President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

https://www.fincen.gov/resources/fincens-innovation-initiative

These are all the hyperlinks in the document directly from the White House

*Also, please note I am not a Conservative/ Republican, or Democrat/ liberal. I align best with the Independent/ Libertarian agenda (if curious on my personal stance)

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These are the areas, and timelines I would highlight and focus on watching for.

  • The President will evaluate whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms. He will also consider urging Congress to raise the penalties for unlicensed money transmitting to match the penalties for similar crimes under other money-laundering statutes and to amend relevant federal statutes to let the Department of Justice prosecute digital asset crimes in any jurisdiction where a victim of those crimes is found.

  • The United States will continue to monitor the development of the digital assets sector and its associated illicit financing risks, to identify any gaps in our legal, regulatory, and supervisory regimes. As part of this effort, Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023.

  • Relevant departments and agencies will continue to expose and disrupt illicit actors and address the abuse of digital assets. Such actions will hold cybercriminals and other malign actors responsible for their illicit activity and identify nodes in the ecosystem that pose national security risks.

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Great links with the US official framework for cryptocurrencies.

Thanks for sharing these.

It’s a bumpy road ahead for sure, but at least it seems this asset class is here to stay!

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Agreed. No problem, I hope I didn’t come off as rude or pretentious even… I think you are absolutely right when you say this…

It’s really worth it in the long run though.

Also, it should be noted that, the white house info. does change often, so I would keep looking back on that page every quarter (3/4 months) and see if it changes or updates. Also, if/ when the admin. changes it might go in a completely different direction (which could be good or bad) so, personally, I am playing this by day on a four-year timeframe depending on who is elected for which public office in the USA for crypto-related policies in particular. It’s no secret that we (the USA) have a lot going on right now, to say the least.

If you have something similar from known sources in your geographic location please feel free to share them. I would love to see the global picture… It might help me, pull myself from the narrow Eurocentric mindset I tend to shift into over time.

@jsull9 I am currently studying / researching legislation from crypto friendly jurisdictions.

Especially Switzerland, Singapore, Bahamas and Grand Cayman.

For any serious effort regarding a crypto business, it seems foolish to base your operations in a country that may suddenly change against you anytime. The US is very risky for a small business in the crypto space, and we are small, so we are looking for safer alternatives to start.

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Very wise. I am not going to knock your methods.

I do think you should start going directly to the legislation on these areas (if any exist) rather than news articles. I know in the US there are websites where every law under the moon is provided you just have to surf through it all, and then understand the legalese when reading exact policies. Then if you want, you could look up the case where the law stems from and read the opinions given by the court as to why the law was created and the ways it has previously been brought up in court. This way you could get a better contextual understanding of how the law applies to your individual situation.

Just some more random info if you want to dig around in some more US-related areas. I do understand your rationale though. Seems wise.

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The current administration will definitely target ICP because the whole point of ICP is to democratize the internet/ cloud , among other things. Just like they deplatformed political adversaries and free speech they dont like, so shall they use government policing agencies to cripple an entity like ICP with regulations, harrassment and ultimately a big US government boot against the neck of ICP protocols and autonomy away from the big silicon valley internet gatekeepers that happily do the bidding of a government that has no tolerance for companies unwilling to be big government statist proxies. Buckle up… I’m worried.

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