Behind the Scenes as Big-Tent Consensus Goes Up

ETH ETF IMPLICATIONS – The U.S. Securities and Exchange Commission approved key regulatory filings for proposed exchange traded funds (ETFs) linked to the price of the Ethereum blockchain’s native cryptocurrency, ether (ETH) – after months of speculation that regulators would likely deny the instruments. While most Ethereum supporters likely applauded the step, since the ETH token’s price rallied, the developer shop Consensys couldn’t resist the opportunity to tweet that “this seemingly last-minute approval is yet another example of the SEC’s troublesome ad hoc approach to digital assets.” Consensys, which is suing the agency, argued that the approval might mean Ethereum is no longer under the threat of being declared a security, which would trigger strict regulations. The approval isn’t final, because the SEC only approved 19b-4 filings for the proposals, as opposed to the S-1 registration statements that would be needed before the ETFs can start trading; the green light for those could still take months. (This distinction caused a minor controversy on the prediction-betting platform Polymarket, since some bettors who had put money on a denial argued that they hadn’t officially lost.) What’s clear from the past week is that the SEC won’t allow the ETF issuers to stake their ETH tokens – essentially depriving holders of the instrument to capture the extra yield. From a blockchain security perspective, that might mean that there’s less circulating ETH supply available to put to work in Ethereum’s proof-of-stake consensus mechanism. “The inability for issuers to stake ETH, could have potential downstream implications for the supply dynamics of ETH, the health of Ethereum’s consensus layer and the staking ecosystem as a whole,” according to a report Tuesday from the analysis firm Coin Metrics. Another question might be how well any new ETF buyers would actually understand how the smart-contracts blockchain functions.