Buy the rumor Series: The Potential Impact of Improved Regulatory Environment Expectations on Crypto Assets

Recently, with the changes in the political situation, the market has begun to expect that the chairman of the United States Securities and Exchange Commission ( SEC ), Gary Gensler, may resign. This expectation has sparked speculation about a potential improvement in the regulatory environment for Crypto Assets. This article will analyze which type of Crypto Assets may benefit the most in this context. We believe that the ETH Staking sector is likely to be a direct beneficiary, with the leading project Lido expected to overcome its current price difficulties.

Review of Lido's Regulatory Challenges

Lido is a leading project in the ETH Staking field, helping users participate in Ethereum PoS and earn rewards by providing non-custodial technical services, while lowering the technical and financial thresholds. The project has raised a total of $170 million through three rounds of funding. With its first-mover advantage, Lido's market share has remained around 30%. However, a lawsuit at the end of 2023 changed the situation.

On December 17, 2023, Andrew Samuels filed a lawsuit against Lido DAO in the Northern District Federal Court of California, alleging that it sold LDO coins to the public without registration, in violation of the Securities Act of 1933. The lawsuit also involves Lido's main investors.

On April 10, 2024, the court officially accepted the case. On May 28, the plaintiff requested to declare Lido DAO absent. On July 2, Lido DAO had to hire a defense lawyer through a community proposal.

At the same time, on June 28, 2024, the SEC filed a lawsuit against Consensys Software Inc., accusing it of engaging in the unregistered issuance and sale of securities through its MetaMask Staking service. The SEC explicitly described Lido's stETH as a security in the lawsuit.

These regulatory pressures have led to a decline in LDO prices, primarily due to investors' concerns that potential fines may affect the financial condition of Lido DAO.

Does stETH constitute a security?

The key to determining whether stETH is a security lies in the "Howey Test." This test includes four criteria: investment of money, common enterprise, expectation of profits, and efforts of others. If all conditions are met, it may be classified as a security.

However, the Crypto Assets industry holds a different view on this. For example, Coinbase believes that the ETH Staking business does not meet the elements of the Howey Test and therefore should not be regarded as a securities transaction. They argue that during the staking process, users retain ownership of their assets, there is no common enterprise, staking rewards are similar to labor income rather than investment returns, and the service provider only offers technical support rather than management.

Reasons to Pay Attention to Lido's Future Development

1. The current price slump is mainly influenced by regulatory pressure, rather than poor business performance.

2. ETH has been defined as a commodity, and there is considerable discussion space related to it.

3. After the approval of the ETH ETF, related resources may support the promotion of ETH Staking. There are rumors that allowing the ETH ETF to provide indirect staking rewards to buyers may enhance its appeal.

4. The plaintiff in the Samuels v. Lido DAO case is an individual, not the SEC, resulting in potentially lower legal costs.

In summary, against the backdrop of a potentially improving regulatory environment, Lido's subsequent development is worth close attention.