What’s at Stake: Will the Merge Turn Ether Into a Security?

A world where ETH is a security

In an interview with CoinDesk TV, Levitin explained potential ramifications if ether becomes a security.

Essentially, smaller decentralized finance (DeFi) projects, especially those outside the United States, may continue to operate. Even if these projects run afoul of U.S. securities laws, Levitin said the SEC would be less likely to deploy its limited enforcement resources to convict them when big centralized organizations make easier targets.

The biggest change may be in the regulation of centralized exchanges. Currently, exchanges need only to register as money services businesses at the federal level and obtain money transmitter licenses in the states where they operate to facilitate spot ETH trading. A securities designation would bring them under the additional authority of the SEC.

At a minimum, that would mean new business models for exchanges and more complex transactions for customers. Many other downstream effects would likely manifest.

Today, cryptocurrency exchanges perform brokerage, clearinghouse and exchange functions under one roof (exchanges are asset marketplaces, brokerages facilitate transactions by connecting buyers and sellers and clearinghouses settle trades). If firms like Coinbase (COIN) and Kraken were to be regulated as securities exchanges, Levitin said, they would have to separate each of those three functions.

“If they have to register as securities exchanges with the SEC, they’re probably going to have to divest those different lines of business because there are just too many conflicts of interest when you’re wearing all three hats,” Levitin said.

https://finance.yahoo.com/news/stake-merge-turn-ether-security-191207449.html