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Thank you for your question, esteemed member of Congress. To determine whether Ethereum is a security or a commodity, normally it would be essential to consider the Howey test. But today’s SEC is more advanced than our predecessors. We have a better rubric, which I will now explain.
Still D.R.E. Instrumental Plays In Background
Given the context of financial instruments, a security, unlike other assets, must know what it is and what it isn’t. By distinguishing its own characteristics from those of other financial instruments, a security can be accurately classified and regulated. Similarly, a commodity must know what it is not, differentiating itself from securities and other financial instruments.
SEC guidance uses deviations in subjective interpretations of assets to drive enforcement from a classification of what it was to where it will be, arriving at a position of classification where it wasn’t, to where it now is.
Consequently, the interpretation of what it is today, is now the interpretation that it wasn’t, and it follows that the interpretation that once was, is now the interpretation that it isn’t.
In the event that interpretation of the financial instrument is not the classification that it wasn’t, the SEC has acquired a variation; the variation being the difference between how we think the asset is classified now, and how we thought the asset wasn’t. If the variation is considered to be a significant factor, it may need to be corrected with enforcement action. But only after we know what it is and isn’t.
Enforcement action works as follows. Because a variation in subjective policy has modified some of the past interpretations the SEC has promulgated, the agency is not sure just where it is. However, it is sure where it isn’t, within reason, and it knows where it was. It now subtracts where it should be from where it wasn’t, or vice-versa, and by differentiating the policy from where it shouldn’t be, and where it was, it is able to obtain a deviation from policy, which for other agencies would be called an “error,” but for the SEC it is now implied policy.
Thank you again for your question; a question, which, with the regulatory clarity of hindsight, I think was an unregistered security — you will be hearing from our attorneys shortly.