Gushiken Yona
Eighteen states, joined by the DeFi Education Fund, are challenging the Securities and Exchange Commission’s (SEC) authority over crypto staking services in a landmark lawsuit filed Thursday. The complaint, lodged in the U.S. District Court for the Eastern District of Kentucky, Frankfort Division, targets SEC Chair Gary Gensler and other commissioners, alleging their aggressive enforcement actions and evolving guidance stifle innovation and unconstitutionally infringe on state regulatory powers.
At the heart of the dispute was the SEC’s assertion that staking services—where cryptocurrency holders lock up their assets to validate transactions and earn rewards—constituted the offering of unregistered securities. The states argued that staking did not meet the criteria of the Howey Test, the long-standing legal standard defining a security.
They emphasized that staking rewards were generated by the operation of the blockchain network, not through the managerial efforts of a third party, a key distinction under the Howey Test. The lawsuit contended that the SEC’s actions preempted state-level regulatory efforts, violating principles of federalism.
The complaint cited Kraken’s decision to halt its U.S. staking services following an SEC enforcement action as evidence of the agency’s detrimental impact on the industry. The complaint stated that “the SEC’s overreach threatens to cripple the development of the digital asset industry nationwide.”
The legal challenge sparked strong reactions across the crypto community. “The proverbial door hitting the regime on the way out,” said, Jeremy Hogan, a partner at Hogan & Hogan. Joshua Jake, CEO of @Discovercrypto_, founder of http://Fomoed.io and co-founder of @OmniSwapAi, expressed a more direct sentiment: “Gary Gensler You Are Fired… Today 18 states sued Chairmen Gary Gensler and the SEC commissioners for regulating the Crypto Industry unfairly by enforcement.”
Gabor Gurbacs, PointsVille founder commented on the lawsuit saying, “18 US states sue the SEC, alleging unconstitutional overreach and unfair persecution of the crypto industry under Gary Gensler. We didn’t stay silent. FAFO.”
The lawsuit arrived amid heightened Congressional scrutiny of the SEC’s actions in the digital asset space. Several bipartisan bills aiming to clarify regulatory oversight of cryptocurrencies were introduced, and hearings on the matter were anticipated. This legal challenge further intensified the pressure on the SEC to provide clearer guidelines.
SEC Chair Gary Gensler maintained a hawkish stance on cryptocurrencies, arguing that many tokens represented unregistered securities requiring SEC oversight. The agency pursued enforcement actions against platforms like Coinbase and Gemini.
Market reaction was muted, with Bitcoin and Ether prices remaining relatively stable. However, experts believed the case’s outcome could significantly reshape the U.S. crypto regulatory landscape.
A ruling for the states could have shifted oversight toward states, fostering a less restrictive environment. Conversely, an SEC victory could have solidified its authority.
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Yona has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Daily is an official media and publication of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
