Ethereum Foundation Faces Investigation By US Authorities

The legal action likely spells the end for hopes of an ETH spot ETF being approved by May.

Will the investigation end the possibility of an ETF?

The Ethereum Foundation, the Swiss organization tasked with oversight and development of the Ethereum ecosystem, is under investigation by an unnamed US agency. It has since been reported that the SEC wants to classify ETH as a security, and there is concern that the current legal action might prevent the approval of an ETH spot ETF next quarter.

Warrant Canary

The Ethereum Foundation is likely subject to a gag order by the investigating agency, but a "warrant canary" posted on the site has since been removed, indicating legal action is under way.

A warrant canary is a method used by organizations (typically those involved in online services or publishing) to inform users that they have not received certain legal orders, such as secret government subpoenas, which may compromise users' privacy or security. The organization periodically publishes a statement indicating that they have not been subjected to such orders. If the statement is not updated or disappears, it may suggest that the organization has been subject to legal orders and is no longer able to inform its users. Warrant canaries are often used in contexts where the organization is subject to gag orders or other legal restrictions that prevent them from openly disclosing certain activities.

Text reading as follows has disappeared from the Foundation's website: "The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations."

Additionally, a Github commit dated to February 26 indicates a "voluntary enquiry from a state authority that included a requirement for confidentiality".

ETF Hopes Dashed

It's fair to assume that the SEC is behind the investigation, one way or another. ETH has long been in the SEC's sights, with Chair Gary Gensler refusing to state whether the token is a security or commodity (despite claiming that the rules are clear).

A number of spot ETH ETF applications are in process, but these lack the optimism and positive rumors that accompanied the BTC spot ETFs last year. There are no stories of the SEC reaching out to providers, and hopes are fading that the products will be approved by the May deadline, even with financial giant BlackRock spearheading the move.

Recent reports suggest that the SEC has subpoenaed three organizations connected to the Ethereum Foundation.


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