In the U.S., Consensys Software, the blockchain and web3 company behind the well-known MetaMask Wallet, has initiated a legal battle against the U.S. Securities and Exchange Commission (SEC) and its Chair Gary Gensler, challenging the agency’s approach to Ethereum. The lawsuit questions the SEC’s authority to classify ether as a security. Under its Gensler, the SEC applied a “regulation by enforcement” approach and continues to insist on the decade-old Howey Test.
Quick Take:
- Consensys Sues SEC: Challenges the categorization of Ethereum as a security.
- Wells Notice Issued: SEC’s formal notice hints at enforcement action against Consensys.
- MetaMask’s Role: Consensys defends MetaMask as an interface, not a securities broker.
- Legal Outcome Sought: Consensys seeks court intervention to declare ETH not a security.
- Support from Industry: Key industry figures and organizations back Consensys’ stance against SEC.
In the complaint, Consensys contests the SEC’s recent actions, including classifying ETH as a security despite previous assurances to the contrary. The company argues that Ethereum does not exhibit the characteristics of a security and, therefore, should not fall under the SEC’s jurisdiction. This legal action comes after the SEC issued a Wells notice to Consensys, indicating a forthcoming enforcement action.
The U.S. Securities and Exchange Commission’s (SEC) threatened regulation of ether as a security would jeopardize the United States’ ability to use Ethereum and similar blockchain technology. The implications would stretch far beyond digital asset trading, jeopardizing the future of countless new innovations, products and U.S. jobs that this next generation of the Internet will unleash. That’s why we’ve taken the necessary step of suing the SEC, to stop its unlawful power grab.
Consensys explanation of the Ethereum DefenseEther (link to website)
The crux of the dispute revolves around the SEC’s focus on Consensys‘ MetaMask software. According to Consensys, MetaMask acts merely as an interface, similar to a web browser, facilitating users’ interaction with the Ethereum network without directly offering or selling securities.
Applications such as MetaMask that allow people to buy, sell, and transfer ether on their own are not securities brokers. The MetaMask wallet, created by Consensys, gives users everything they need to explore web3; from managing their identity, sending and receiving cryptocurrency, to connecting to decentralized applications built on Ethereum. Declaring it a securities broker would effectively block web3 developers from continuing to build next generation applications themselves.
Consensys Defense of MetaMask (link)
The lawsuit aims to obtain a court declaration confirming that ETH is not a security and to challenge the SEC’s alleged violation of procedural laws. This legal confrontation underscores the broader industry challenges in dealing with regulatory frameworks for cryptocurrencies.
The SEC makes a crypto regulatory power grab: […] In August 2021, within months of becoming the SEC’s Chair, Gensler vowed to “take [the agency’s] authorities as far as they go” in pursuit of crypto. Soon thereafter, the SEC doubled the size of its crypto enforcement unit and ramped up investigations of participants in the digital asset market.
Consensys complaint (Par 63)
The Consensys lawsuit reflects the ongoing tension and need for clarity in the regulatory treatment of digital assets. As this situation develops, it will undoubtedly have significant implications for the crypto sector and its interaction with regulatory authorities globally.
