Ethereum co-founder says ether not a security, compares it to oil after regulator claims

The co-founder of Ethereum, Joseph Lubin, hit out at regulators likening the ether cryptocurrency to a security, saying it was more akin to a commodity like oil.

In an interview with CNBC’s Arjun Kharpal at Paris Blockchain Week Thursday, Lubin said he was “very confident” ether was not a security.

If it were treated as such, ether would need to be registered with regulators and subjected to much stricter requirements around pre-clearance and reporting.

“Anyone can say anything, it doesn’t make it true,” Lubin told CNBC.

The concerns that ether may be deemed a security stem from a lawsuit filed by the New York Attorney General Letitia James against Seychelles-based cryptocurrency exchange Kucoin, which alleged the firm failed to register as a securities and commodities broker-dealer and falsely represented itself as an exchange.

In the lawsuit, the NYAG’s office listed ether among several tokens listed on Kucoin that the regulator viewed as securities, stating it was a “speculative asset” that relies on the efforts of third-party developers to provide holders with a profit.

“It’s unfortunate that that sort of side swipe was made, but I don’t think it’s all that relevant,” James said. 

Ether is different from bitcoin in that it fuels an ecosystem of applications where users can make trades, loans, or buy nonfungible tokens.

It is the second-largest token globally, with a market capitalization of $212.8 billion.

Ether was trading 2% lower Thursday in the last 24 hours, according to data from CoinGecko.

“I’m not worried about ether so much,” Nic Cary, co-founder of Blockchain.com, told CNBC’s Kharpal. “I just don’t know where you’re going to target that action even if you wanted to pursue it.”

“Obviously there are some major lawsuits that are working there way through the U.S. Coinbase has already indicated they’re looking forward to letting this lie on its merits.”

Previously, the U.S. Securities and Exchange Commission also suggested ether may be classed as a security due to its switch to a new verification system known as “proof of stake.”

In a proof of stake model, a blockchain’s validators lock up some of their tokens in return for ensuring the security of the network. By doing so, they can gain interest-like yields.

Some regulators believe that model means it fulfils the Howey Test, which states that an investment contract exists if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others. 

In September, SEC Chair Gary Gensler told reporters that any cryptocurrency or intermediary that allows holders to “stake” their tokens may pass the Howey Test.

Lubin said ether should instead be viewed as a commodity. “People buy barrels of oil with the expectation of profit,” he said.

When asked again whether he thinks ether might be a security, Lubin said: “I don’t think there’s any point to speculate on something that is extremely unlikely.”

The SEC has ramped up its enforcement of the crypto industry lately, clamping down on companies and projects it alleges have offered users unregistered securities.

On Tuesday, the SEC issued crypto exchange Coinbase a notice warning the company that it had identified potential violations of U.S. securities law.

Lubin said crypto industry participants are “generally frustrated” with actions from the regulators.

“I think some of us believe that many of the actions are right and reasonable,” he said, adding “more clarity” was needed. “We’ve seen focus on things that should see real scrutiny and we’ve seen misunderstandings.”

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