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If you’ve ever played a casual game of pool, you’re familiar with the situation where the ball you wish to sink has no direct path to the pocket, and you’re forced to try a more elaborate shot that involves banking it off one or more of the sides. It’s a great feeling when it works and the ball goes in. The trouble is, most of the time it doesn’t. This is the situation SEC Chair Gary Gensler now finds himself in as he seeks to exert jurisdiction over Ethereum, which many feel slipped away from the agency’s purview years ago.

The second-biggest blockchain, which went live a decade ago, is largely decentralized. When a small group of people arranged to issue tokens for sale shortly after its launch, the SEC could have made a plausible case Ethereum was a securities offering. But that ship has long since sailed, so Gensler is trying the regulatory version of a bank shot.

This has become apparent in the SEC’s recent efforts to go after those engaged in staking, a process that Ethereum implemented in late 2022, and that replaced energy-intensive mining with a new model for verifying transactions on the blockchain. That model entails trusted nodes called validators, which receive modest rewards for updating the chain, and that require people to post collateral to ensure they are behaving honestly. If they try anything funny, they get “slashed” and lose that collateral.

It’s a clever model that serves to maintain the blockchain in an energy-efficient manner and has worked well as Ethereum has continued to attract new projects and developers around the world. It’s just how Ethereum works. Under Gensler, however, the SEC’s lawyers have attempted to seize on staking as proof the blockchain’s tokens are securities in order to try to stuff the Ethereum toothpaste back in the tube.

I don’t really get it. If you squint, I suppose you can look at the validators who secure the blockchain—and offer to stake tokens on behalf of smaller Ethereum holders in return for a cut of the reward—as engaged in some sort of issuance of securities. But it doesn’t make sense in the broader context of Ethereum, which is a sprawling decentralized project with no single group of people in charge of it. It makes even less sense to imagine how Ethereum was not a security in 2018—Gensler said so himself at the time—but that now it is.

In any case, his legal theory will soon be put to the test as crypto giant Consensys yesterday sued the SEC to fend off the agency’s attempt to regulate the staking service offered by its MetaMask wallet. The company is not only asking the court to force the SEC to stay away from MetaMask but to leave all Ethereum projects in peace once and for all. This doesn’t mean Consensys is saying those who make money on staking should pay no tax—that’s an issue for the IRS—but rather that the SEC has no legal authority to touch Ethereum in the first place.

These sorts of things are unpredictable but, at first glance, it’s hard to see how the SEC wins in court. Perhaps Gensler is very good at pool and thinks he can make the legal version of a tough bank shot. Or maybe he’s just taking a shot and relying on blind luck that it will work.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

Payment giant Stripe is accepting USDC, the first time it has processed crypto since 2018 when it ceased taking Bitcoin because it was “unstable.” (TechCrunch)

New funds stopped pouring into BlackRock’s Bitcoin ETF on Wednesday, ending a 71-day streak of inflows. (Bloomberg)

Movement Labs, a startup building a new layer 2 on Ethereum using tech created for Facebook’s abandoned Move blockchain, raised a $38 million Series A led by Polychain. (Fortune)

Pantera Capital is seeking to raise a $1 billion crypto fund, the largest since 2022, that will invest in a broad array of crypto assets. (Bloomberg)

Lawyers for Binance founder CZ seeking leniency ahead of his sentencing filed 160 letters of support, including from the two mothers of his five children. (Bloomberg)