During the scene where the US Treasury Department sanctioned Tornado Cash earlier this month and the long-awaited Ethereum The Merge is about to launch, blockchain technologists are increasingly concerned that the fundamental operation and Proof-of-Stake consensus mechanism could be adversely affected by government regulations.
This concern was further raised by the community when Lefteris Karapetsas, the founder of the open source accounting and analytic tool Rotki, posed the question over the weekend and also tagged some major Ethereum “players” such as Lido Finance, Coinbase, Kraken, Bitcoin Suisse to consult them about this matter.
Lefteris Karapetsas wrote:
“If regulators ask you to censor at the #ethereum protocol level with your validators will you:
A) Comply and censor at protocol level
B) Shut down the staking service and preserve network integrity”
Coinbase CEO Brian Armstrong was the only one who answered the question. He stated that if threatened by regulators, his company would shut down the Ethereum staking service.
“It’s a hypothetical we hopefully won’t actually face. But if we did we’d go with B i think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”
Armstrong’s answer is particularly notable as Coinbase is betting much of its future on its ETH staking service, which launched in August 2022 to support US customers. Coinbase even calls it a “big win” for the company. According to JPMorgan analysts, Coinbase shares (COIN) will probably increase in price thanks to the ETH staking service. Coinbase even shared with shareholders that: “We’ll continue to add more assets for staking for both our retail and institutional clients going forward.”
On the other hand, during the legal battle with SEC, Coinbase is not only being investigated by regulators over listing tokens as securities, but also involved in another investigation aimed at Staking and Yield Farming products. Therefore, it is understandable for Coinbase to choose to shut down the service.
As The Merge’s launch date approaches, Web3 investors and analysts are also concerned that institutions offering staking service for Ethereum are more likely to succumb to pressure from regulators. Because they manage such a large percentage of validators, their absence could threaten the entire Ether network. Analyst Eylon Aviv blockchain investment firm Collider VC predicts that these major players will be forced to comply if US regulators require them to censor transactions. That means up to 66% of Ethereum PoS validators would essentially support censorship.
Follow our channels for more crypto news:
- Cryptory Insights: https://t.me/CryptoryInsights
- Cryptory Global Community: https://t.me/CryptoryCommunity
- Facebook: https://www.facebook.com/CryptoryNetwork
- Twitter: https://twitter.com/CryptoryNetwork