Ether Could Avoid Designation as a Security With Centralization Risk Easing, JPMorgan Says

• JPMorgan said that Lido’s share in staked ether has continued to fall, reducing concentration concerns.
• This has raised the chances that ether will not be designated as a security, the report said.
• Tokens on a sufficiently decentralized network are no longer considered securities.

Staking platform Lido’s share of staked ether ETH$2,490.55 has continued to fall, which should reduce concerns about concentration in the Ethereum network, raising the chance that ETH won't be designated as a security in the future, JPMorgan (JPM) said in a research report on Wednesday.

“The share of Lido in staked ETH has decreased further from around one third a year ago to around a quarter at the moment,” analysts led by Nikolaos Panigirtzoglou wrote.

The Hinman documents, which were released last June, “revealed the role of network decentralization in the SEC’s thinking on whether a digital token should be classified as a security or not,” the analysts wrote.

JPMorgan notes that officials from the Securities and Exchange Commission (SEC) had acknowledged in the past that “tokens on a sufficiently decentralized network are no longer securities as there is no controlling group in the Howey sense.”

The Howey Test relates to the U.S. Supreme Court case to determine whether a transaction qualifies as an investment contract. If a transaction is considered to be an investment contract, it’s classified as a security.

The recent Dencun upgrade should “help Ethereum to increase its dominance against alternative layer 1 blockchains and to recapture the lost market share due to previous scalability issues,” the report added.

Read more: Ethereum Could Face ‘Hidden Risks’ From Ballooning Restaking Market: Coinbase