Paradigm, a crypto venture capital firm, has filed an amicus brief in the ongoing case between the New York Attorney General (NYAG) and KuCoin. The NYAG sued KuCoin in March for operating in the state without registering and facilitating the trading of tokens like Ethereum (ETH), which the regulator classified as securities. However, Paradigm disagrees with this classification of ETH as a security and has filed a brief to support its position.
Paradigm’s Arguments
In its amicus brief, Paradigm argues that the NYAG’s classification of ETH as a security is unsupported by law. The firm states that ETH is “just software, ‘little more than [an] alphanumeric cryptographic sequence,’” and that the NYAG is conflating the tokens themselves with the alleged investment contracts pursuant to which they were sold.
Paradigm also argues that the NYAG’s reliance on the embodiment theory, espoused by the U.S. Securities and Exchange Commission (SEC), would create difficulties for market participants seeking to transact cryptocurrency tokens. The firm cites the SEC’s lawsuit against Ripple as an example, where the SEC argued that a token sold as part of an investment contract trading on a secondary market now embodies and represents the “investment contract.”
Furthermore, Paradigm argues that ETH’s transition to the proof-of-stake consensus does not morph the asset into a security. The firm states that ETH validators are being paid for providing a service and did not enter into an investment contract, as the NYAG argued. Staking does not cause ETH to increase in value, and users do not receive interest or profits from staking; it is simply a way to acquire more ETH.
Finally, Paradigm cites several examples of speeches from former SEC officials, including chairman Jay Clayton and Director Bill Hinman, to back up its claim that ETH is not a security.
Paradigm’s Previous Support for the Crypto Industry
This is not the first time that Paradigm has filed an amicus brief to support the crypto industry. The firm previously filed a brief in an attempt to prevent the SEC from classifying the failed TerraUSD stablecoin as a security in its case against Terra and Do Kwon.
Paradigm’s amicus brief argues that the NYAG’s classification of Ethereum as a security is unsupported by law and would create difficulties for market participants seeking to transact cryptocurrency tokens. The firm also cites examples of speeches from former SEC officials to support its position.