Under the expectation of improved regulatory environment, the ETH Staking zone may become the biggest beneficiary.

Recently, with the changes in the political situation, the market began to expect that the chairman of the U.S. Securities and Exchange Commission ( SEC ) may face personnel adjustments. This expectation has sparked speculation about a potential improvement in the regulatory environment for cryptocurrencies. Against this backdrop, the ETH Staking zone is expected to become a directly benefited area, where the leading project Lido may escape the current price dilemma.

Review of Lido's Regulatory Dilemma

Lido, as a leading project in the ETH Staking zone, helps users participate in Ethereum PoS and earn rewards by providing non-custodial technical services, while lowering both the technical and financial barriers. The project has raised a total of $170 million through three rounds of financing. Since its launch in 2022, Lido has maintained a market share of around 30% due to its first-mover advantage.

However, a lawsuit at the end of 2023 changed the trajectory of Lido's development. An individual named Andrew Samuels filed a lawsuit against Lido DAO in the United States District Court for the Northern District of California, accusing it of selling LDO tokens to the public in an unregistered manner, in violation of the Securities Act of 1933. The lawsuit also involved Lido's major investors, including several well-known venture capital firms.

As the lawsuit progresses, Lido DAO has to actively respond, including hiring lawyers and applying for defense funds. Meanwhile, the SEC's lawsuit against Consensys Software Inc. also indirectly affects Lido, as the SEC describes stETH as a security in that case. These regulatory pressures have led to a continued slump in the price of LDO.

The Controversy over the Securities Nature of stETH

The question of whether stETH constitutes a security has become a focal point of controversy. According to the four criteria of the "Howey Test" (investment of money, common enterprise, expectation of profit, efforts of others), the SEC tends to classify stETH as a security. However, the cryptocurrency industry holds a different view. A trading platform believes that the ETH Staking business does not meet the requirements of the Howey Test and therefore should not be regarded as a securities transaction.

Specifically, the platform believes:

1. During the staking process, users retain ownership of their assets and there is no investment behavior.
2. Staking is completed through a decentralized network and smart contracts and does not constitute a joint venture.
3. Staking rewards are similar to labor compensation, rather than investment returns.
4. The staking service provider only offers technical support and does not engage in management activities.

This indicates that there is still room for discussion regarding the securities attributes of ETH Staking related assets, and their classification largely depends on the subjective judgment of regulatory authorities.

Lido Development Prospects Analysis

The future development of Lido is worth paying attention to for the following reasons:

1. The current price slump is mainly due to regulatory pressure, rather than poor business performance. A change in regulatory attitude may bring about a price rebound.

2. Ethereum has been defined as a commodity, and there is considerable room for controversy, which is beneficial for Lido's defense.

3. The approval of the ETH ETF may bring new opportunities. Industry expectations suggest that allowing ETH ETFs to provide indirect staking rewards for investors may increase their attractiveness, which will benefit staking service providers like Lido.

4. The lawsuits faced by Lido were not directly initiated by the SEC, and the legal costs to resolve them are relatively small, with limited impact.

In summary, as the regulatory environment may improve, Lido's development prospects are worth the market's continued attention. The ETH Staking zone may become one of the biggest beneficiaries of the improved regulatory environment.