Controversial Blockchain Company Prometheum Launches Long-Awaited Ethereum Guard

The US crypto industry has complained loudly about the lack of regulatory clarity, but one company sees things differently. Digital asset platform Prometheum has taken the contrarian view that a clear legal path already exists for trading cryptocurrencies – a position that has drawn the ire of others in the industry.

The New York-based company put its theory to the test on Friday by launching its long-planned custody services for Ethereum. This move is notable because Prometheum does so in a way that classifies the token as a security under the supervision of the Securities and Exchange Commission. Guard launch appears to validate agency president’s post Gary Genslerwhich countered the position of the entire crypto industry by asserting that the existing regulatory regime is adequate and effective.

“It eliminates a lot of arguments that things can’t be done under existing laws,” said Aaron Kaplan, co-CEO of Prometheum Inc., the parent company of the entity that launched Ether custody. . “This is the first time that…a digital asset title of an investment contract has been maintained and processed under securities laws.”

The bet

Founded by brothers Aaron and Benjamin Kaplan, Prometheum existed in relative obscurity before bursting onto the crypto scene in mid-2023 with the announcement of obtaining a broker-dealer license, the first in its kind, which would allow companies to retain digital assets. asset titles.

While much of the blockchain industry maintains that the vast majority of cryptocurrencies should not be treated as securities under the SEC’s jurisdiction, Prometheum has presented a new alternative claim. It argued that its distinction as a special purpose broker-dealer, along with a license for a separate entity to operate an alternative trading platform, would allow it to offer cryptocurrency trading within existing regulations. of the SEC.

Prometheum’s bet, along with Aaron Kaplan’s controversial appearance at a House Financial Services Committee hearing on digital assets, drew sharp criticism from industry executives, who argued that the Prometheum’s approach would not work and it would not be able to launch products or find solutions. clients.

For months, Prometheum refused to specify which crypto assets it would treat as securities and offer on its platforms, until February, when it announcement that it would soon make Ethereum available for custody. While the launch does not constitute a full trading offering, custody is a necessary first step to facilitate transactions, as clients need a place to hold the assets they buy and sell. By operating both the custodian and the trading system under separate entities with approval from the SEC and the Financial Industry Regulatory Authority (FINRA), an independent industry watchdog, Prometheum claimed to have found a compliant path where competitors like Coinbase had failed.

Once again, the announcement was met with vitriol, with crypto proponents fearing that the launch means the SEC considers Ether a security – a position the agency has not yet taken, but has telegraphed several times, and which would have considerable consequences for the sector. These concerns were heightened when the SEC issued a notice from Wells against Ethereum developer Consensys in late April that seemed to confirm industry fears.

Prometheum’s launch of Ether custody services, however, was delayed beyond its March target, until Friday. Kaplan told Fortune that Prometheum Inc., the Prometheum subsidiary that holds the broker-dealer license, had soft-launched the product with a small group of companies and planned to fully launch custody services within the first week of June. Full negotiation, he said, would take place within a quarter. He declined to provide further details about the companies included in the pilot.

After months of threatening to upend the crypto industry’s long-held belief that Ether could be traded under SEC direction, Prometheum’s custody launch represents the strategy’s first test of the company.

“It took a little longer than expected,” Kaplan said. “But we didn’t really have the option to do it differently.”

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