Crypto venture capital firm Paradigm filed a brief amicus curiae 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, NYAG sued KuCoin for operating in the state without registering, adding that the exchange facilitated the trading of tokens such as ETH, which are supposed to be securities.
However, Paradigm disagreed with the regulator’s classification of Ether as security. In its amicus curiae brief, the firm said:
“(New York authorities) were trying the side door of due process: claiming that the second most valuable token in the world is a security in a share against an unrelated third party who is unlikely to argue otherwise.”
Paradigm explains why ETH is not security
According to the May 18 court filing, 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 combines the ETH tokens themselves, which are simply software, with the purported investment contracts under which those tokens were sold.”
Paradigm further argued that the regulator’s reliance on the incorporation theory, adopted by the US Securities and Exchange Commission (SEC), would present insurmountable difficulties for market participants seeking to transact cryptocurrency tokens.
In its lawsuit against Ripple, the SEC argued that a token sold as part of an investment contract that is traded on a secondary market now embodies and represents the “investment contract.”
Paradigm added that ETH’s transition to proof-of-stake consensus does not transform the asset into a security. The firm wrote that ETH validators are paid to provide a service and did not enter into an investment contract, as New York authorities argued.
“Participation does not cause ETH to increase in value and does not generate interest for users, and as such, there are no “earnings”; staking is just a way to acquire more ETH.”
On top of that, the brief cited several examples of speech from different regulators saying that ETH was not a security. He gave examples of speeches by former SEC officials such as Chairman Jay Clayton and Director Bill Hinman to back up his claim.
Meanwhile, this is not the first time Paradigm has filed an amicus curiae brief supporting the crypto industry. The firm filed a brief to prevent the SEC from classifying the failed TerraUSD stablecoin as a security in its case against Terra and Do Kwon.
The publication Paradigm argues against the New York attorney general’s classification of Ethereum as securities that first appeared on CryptoSlate.
