In Binance’s complaint, CFTC labels ETH a commodity 

The Commodity Futures Trading Commission (CFTC) of the United States filed a lawsuit against Binance on March 27 for violations of the Commodities Exchange Act and CFTC regulations.

These violations included Ether (ETH) transactions, according to the lawsuit. This claim initially touched on a significant point of contention between the Commodity Futures Trading Commission and the Securities and Exchange Commission (SEC).

In its lawsuit, the CFTC said that Binance participated in transactions using “digital assets that are commodities, including Bitcoin, Ether, and Litecoin, for U.S. persons.”

This job was not new to the agency. In its December lawsuit against FTX, the CFTC asserted that ETH was a commodity, and CFTC head Rostin Behnam indicated on March 8 that ETH and stablecoins were also commodities.

Before the Ethereum Merge, the CFTC’s stance on ETH was relatively uncontroversial; after Ethereum moved to a proof-of-stake consensus mechanism, SEC chair Gary Gensler said of staking coins, “From the coin’s perspective […] That’s another indicator that, under the Howey test, the investing public is anticipating profits based on the efforts of others.”

The remark made by Gensler elicited a delayed wave of responses. In February, for instance, Ethereum co-founder and crypto entrepreneur Joseph Lubin said, “Staking is not a security” and that making it one would be a “bad route for the U.S.”

He said that he believed U.S. courts would concur with him and that “there would be a massive uproar from not just the crypto community, but also from various politicians and certain authorities” if ETH were classified as a security.

But the CFTC’s case against Binance is not as dependent on the nature of ETH as it is on the nature of Binance’s goods, limiting its relevance to the overall argument.

“In this specific instance, ETH is being viewed as a ‘commodity’ as opposed to a security,'” said Timothy Cradle, head of regulatory relations at Blockchain Intelligence Group. The lawsuit mentions securities about swaps. Cradle added:

“The economics of an offering including ETH could still change the definition applied to the token. For example, ETH staking could still be construed as an investment contract, and as such a security.”

Some transactions, such as mixed swaps involving ETH, could be subject to regulation by both the SEC and the CFTC, according to Cradle. However, “this would not necessarily define ETH as a security, as mixed swaps also involve commodities and currencies.”

This more complex approach to regulation would not necessarily imply cooperation between the two agencies. Yankun Guo, a partner at law firm Ice Miller, said of the situation in a statement:

“It shows that both the multifaceted nature of how tokens function and how they are used can cause them to be fall under multiple agency’s jurisdiction; […] I wouldn’t be surprised to see a similar lawsuit by the SEC naming all the same tokens except BTC as securities.”