Crypto venture capital firm Paradigm filed a amici short in the case between the New York Attorney General (NYAG) and KuCoin because the regulator described Ethereum (ETH) as securities in the lawsuit.
In March, the NYAG sued KuCoin for operating in the state without registration — adding that the exchange facilitated the trading of tokens like ETH, which are allegedly securities.
However, Paradigm disagreed with the regulator’s classification of Ether as security. In its amicus brief, the company said:
“[New York authorities] tried the side door of due process: claiming that the world’s second most valuable token is a certainty in a lawsuit against an unrelated third party unlikely to argue otherwise.
Paradigm explains why ETH is not security
According to the May 18 lawsuit, NYAG’s argument that ETH tokens are securities is not supported by law because the asset is “just software, little more than [an] alphanumeric cryptographic sequence.’”
“The OAG is confusing ETH tokens themselves, which are just software, with the alleged investment contracts under which those tokens were sold.”
Paradigm further argued that the regulator’s reliance on the embodiment theory — embraced by the U.S. Securities and Exchange Commission (SEC) — would create insurmountable difficulties for market participants seeking to trade cryptocurrency tokens.
In its lawsuit against Ripple, the SEC argued that a token sold as part of an investment contract traded on a secondary market now embodies and represents the “investment contract”.
Paradigm added that ETH’s transition to the proof-of-stake consensus does not turn the asset into a security. The company wrote that ETH validators are paid for providing a service and have not entered into an investment contract, as New York authorities claimed.
“Staking does not cause ETH to increase in value or generate interest for users, and as such there are no “gains”; staking is just a way to acquire more ETH.”
In addition, the letter cited several examples of speeches from various regulators saying that ETH was not a security. It exemplified speeches by former SEC officials such as Chairman Jay Clayton and Director Bill Hinman to support his claim.
Meanwhile, this isn’t the first time Paradigm would file an amicus brief in support of the crypto industry. The company filed a letter to prevent the SEC from classifying the failed TerraUSD stablecoin as a security in its case against Terra and Do Kwon.
The post Paradigm argues against the New York Attorney General’s classification of Ethereum as securities first appeared on CryptoSlate.