In a recent analysis, JP Morgan's Global Markets Strategy team has shed light on key developments within the ethereum network that could significantly influence its classification under securities law. He twitter.com/zerohedge/status/1776080929057841224″ target=”_blank” rel=”noopener nofollow”>report It comes at a critical time for eth, as the Switzerland-based foundation is under investigation by the US Securities and Exchange Commission (SEC).
Why ethereum is not a security
JP Morgan highlights the continued decline in Lido's share of staked eth, which has fallen from about a third a year ago to about a quarter today. This shift towards a more decentralized betting ecosystem could alleviate regulatory concerns regarding centralization within the ethereum network.
“The positive for the ethereum network is that Lido's stake in staked eth has decreased further, from around a third a year ago to around a quarter right now. “This should reduce concerns about concentration on the ethereum network, thereby increasing the possibility that ethereum will avoid being designated as a security in the future,” the report states.
Analysts also reference the so-called “Hinman Papers,” published last June, which have played a pivotal role in shaping the SEC’s stance on digital tokens. According to these documents, the degree of decentralization of the network is crucial, as tokens on a sufficiently decentralized network may not be classified as securities.
He said:
Notably, SEC officials had acknowledged in the past that tokens on a sufficiently decentralized network are no longer securities because there is no “control group” in the Howey test.
Community perspectives on decentralization
The ethereum community has reacted positively to these developments. Anthony Sassano, founder of The Daily Gwei and co-founder of EthHub, twitter.com/sassal0x/status/1775703292884156829″ target=”_blank” rel=”noopener nofollow”>commented about Lido's declining dominance, attributing it to increased competition in the betting space. This, according to Sassano, is a step towards a more decentralized and healthy eth staking ecosystem.
“I have been saying for a long time that the best way to prevent Lido from growing and reducing its market share is to increase competition in the betting space, which we have already done! The ethereum staking ecosystem has never been healthier,” Sassano commented.
However, opinions on the current crop of reclamation projects remain mixed, with some users questioning whether reclamation projects “are better.” In response, Sassano argued: “The debate can only take place once we have a vibrant free market of ethereum staking projects, not a handful dominating the majority of the market share.”
Seraphim, Head of Growth at Ethena Labs, twitter.com/MacroMate8/status/1775786110448230627″ target=”_blank” rel=”noopener nofollow”>Offered a pragmatic view of the situation, suggesting that offering better returns is a more effective strategy than criticizing, stating: “It turns out that providing more returns is a better business strategy than complaining like the Rocketpool trolls. Happy for the LRT projects, although I'm partial to Lido. “This accelerates the space toward something new and exciting.”
More positives for ethereum
JP Morgan also highlighted the importance of the Dencun upgrade in its report, which is a major technological advance since the previous Shanghai upgrade. By introducing blobs and cryptographic schemes like the KZG staking scheme, the Dencun upgrade has “significantly reduced transaction costs on ethereum layer 2,” according to the report.
Looking ahead, the anticipated Petra upgrade is expected to introduce Verkle trees, which will facilitate efficient data storage and further bolster ethereum's scalability and efficiency. The report optimistically notes: “Petra… would introduce features such as Verkle trees for efficient data storage that aim to simplify block verification by pruning historical blocks older than one year, thereby conserving storage and bandwidth”.
At the time of this publication, eth was trading at $3,275.
Featured image from Gagadget.com, chart from TradingView.com
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