New York State Attorney General Letitia James speaks during a press conference, Sept 8, 2022. (Photo: David Dee Delgado/Getty Images)
A legal challenge against a crypto trading platform by New York State appears to be a referendum on the world’s second largest blockchain, Ethereum.
What it’s all about: Ether has a market capitalization of almost $200 million and roughly 400,000 daily users. Its popularity was partly driven by the belief that entrepreneurs had become convinced that the coin was free from securities regulations.
The facts: New York Attorney General Letitia James declared a lawsuit against the crypto exchange KuCoin on Thursday, particularly noting the fact that it is the first such suit alleging that ether is a security.
- KuCoin is the fourth biggest crypto exchange by volume, according to CoinMarketCap. Established in 2017, it holds $3.1 billion in assets on its platform with over $700 million in daily volume.
- The complaint discovered that it violated the law by selling commodities and securities that were not correctly registering in New York state, it offered a staking product similar to the one that got a U.S.-based exchange in trouble with the SEC and that it failed to register as an exchange in the state.
The details: The complaint takes pains to argue that ether (ETH) is a security under existing law.
- It describes the initial coin offering that funded the development of Ethereum. Then it draws attention to the network’s transition to a new consensus mechanism as proof that a small group retains control over it.
- “The developers of ETH promoted it as an investment that was contingent on the growth of the Ethereum network,” the complaint notes.
- Independent operators that verify the validity of transactions on the blockchain are paid automatically in new ethers issued by the network, preserving its ledger against manipulation.
What happened: In order to confirm that various cryptocurrencies were available in the state on KuCoin, a detective bought and sold digital assets on the platform from within its boundaries.
KuCoin did not immediately respond to a request for comment.
The result: The AG is seeking disgorgement of ill-gotten gains from New Yorkers, injunctive relief and other remedies.
The bigger picture: What everyone in the distributed ledger industry will actually be watching is whether or not the court confirms New York’s claim that the second largest cryptocurrency in the world must be regulated as a security.
