openorg-gg/ethsecurity

ethsecurity's Issues

Ethereum Does not meet the First prong

The U.S. Supreme Court's Howey case and subsequent case law have found that an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.

Quoted from SEC's own website - https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets

According to this definition of "investment contract" ETH's staking is not even a investment contract much less passing Howey test, let me explain why

Courtesy - Ben Eddington Eth2Book

This depicts how eth staking works, so in a nutshell ethereum's "Deposit Contract"(where 32 eth must be sent to become a validator) is just a bridge between its execution layer and consensus layer. Notable thing is the user depositing in the Deposit Contract still hold Full self custody of funds now he just holds them in consensus layer from which he can teleport back to execution layer.

There is no involvement from any "Enterprise" in this whole flow, not even the "notorious Ethereum foundation" can do anything about it :). The deposit contract is not owned by anyone and no funds can be withdrawn from it. Some more points on deposit contract which prove its not a Investment Contract last two points are critical to note https://eth2book.info/capella/part2/deposits-withdrawals/contract/

Coinbase in this article correctly says staking is not an investment contract but i guess they skipped the technical details knowingly to not make the article too hard to read
https://www.coinbase.com/blog/coinbases-staking-services-are-not-securities-and-heres-why
(Also I dont know which blockchain's staking they are referring to)

So all in all Eth staking is designed to be fully self - custodial . So according to definition on SEC's website ETH does not meet the "1. An investment of money:" prong either. If that prong itself is not met there is no point for further prongs of Howey test to be even verified imo.

Also I am not familiar with any possible discrepancies between actual U.S law and SEC's definition of investment contract. But i guess it wont matter just the fact that ETH Deposit contract is not a "Investment Contract" according to their website's definition is enough a claim to prove how wrong SEC is in courts.

Here's the Deposit contract Address on mainnet - 0x00000000219ab540356cBB839Cbe05303d7705Fa
Where it can be easily verified that its not owned by anyone and is permissionless.

You also might want to contact some OG devs like Ben Edington to seek further clarification as this is strictly according to my best knowledge.

Thanks for building the website.

Origin and details of the Howey Test

Great site! I discovered it by way of the r/EthFinance daily.

Under the "Defining the Law" section, it would be nice to add a bit more detail on the Howey Test. Here's a proposal of mine.

The Howey Test is used to determine whether a transaction qualifies as an "investment contract." This so-called test gets its name from the 1946 Supreme Court case of SEC versus the W.J. Howey Company. The case concerned the sale of land with citrus groves owned by the Howey Company to investors in Florida. Under the business model, the investors would buy the land and then lease it back to the Howey Company for management and operations. In return, the Howey Company shared profits with the investors. The Howey Company did not register the transactions as securities at that time, leading to the SEC's intervention and then to the landmark Supreme Court case.
The US Supreme Court ruled that Howey's leaseback arrangements were indeed investment contracts and, therefore, subject to the registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. This case established a framework for testing whether an asset can be classified as security that is still in use today. In brief, if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others, then that investment is probably a security.

The Howey Test is not the only method for determining whether an investment is a security, it is however, the most well known.

Spelling errors to correct

On the homepage https://isethereumasecurity.com/ under the section "3. An expectation of profit, derived from the efforts of others:" under the second set of bullets we have "validtor" and it should be "validator"

On the homepage https://isethereumasecurity.com/ we have the following errors under Summary, Prong #2

4th bullet down should start with "Horizontal" and not "Horziontal"

Grammatical / Spelling Errors

It is difficult to trust or have high confidence of the content when it has obvious errors...

Here are a couple to note:

1. The phrase "their to be profit" should be corrected to "there to be profit." The word "their" is a possessive pronoun, while "there" is the correct adverb to use in this context, indicating a place or position.

2. There is a spelling error: "arguement" should be spelled as "argument." In addition, the phrase "for sake of the argument" is slightly incorrect. The correct expression is "for the sake of the argument." The inclusion of "the" makes the phrase grammatically correct.

I'm certain there are many available technologies to do further checking, and corrections of grammar or spelling in the rest of the article. Possibly a better option, would be to consider using a professional lawyer to review it.

I hope my small contribution is helpful and is intended to be read plainly, without negative connotations.