Ethereum
The SEC’s fight with Consensys over Ethereum 2.0 is not over
Consensys, the maker of the popular MetaMask crypto wallet, announced this week that the Securities and Exchange Commission has dropped its unpopular campaign to investigate developers who use Ethereum. The move comes amid the growing legal consensus that Ethereum is a commodity and not a security, putting it outside the agency’s jurisdiction. The announcement, however, also contained a glimmer of hope that reveals that SEC Chairman Gary Gensler’s crusade against Ethereum is far from over.
You may recall that things between Consensys and the SEC came to a head when the company made the bold move continue in April, asking a federal judge to force the agency to reverse course. The lawsuit came as a preemptive strike after the SEC telegraphed that it was poised to file charges against the company following a yearlong campaign of issue subpoenas to developers who use Ethereum.
The SEC’s legal position became precarious after the agency, under increasing political pressure, approved Ethereum ETFs – a recognition that currency is indeed a commodity. In response to a request from Consensys, the SEC then informed the company was “closing its investigation into Ethereum 2.0.” The phrase “2.0” appears to be a reference to blockchain’s new proof-of-stake system that came into effect in 2022.
This was all good news for the market and the price of Ethereum jumped around 3%. But one line from Consensys’ announcement suggested that all was not as well as it seemed, namely that its lawsuit with the SEC was ongoing. This seems strange given that if Ethereum is not a security, the SEC has no jurisdiction and there is nothing to discuss in court.
I asked Consensys’ lawyers what was going on and they told me that the SEC is still going after MetaMask because it can be used to trade tokens on the DeFi market, and also because it provides access to staking, a key part of Ethereum that pays users to help secure the network. Here’s how lawyers put it:
“The SEC’s theory is that because the Swaps offering allows users to trade various tokens using DeFi platforms, it is a securities broker because at least some of those tokens are titles. They also claim that providing a user interface to two liquid staking protocols also constitutes brokerage activity and that it also constitutes the offering of securities of unregistered crypto assets. Closing the Ethereum 2.0 investigation does not resolve these issues.
In other words, the SEC is trying to argue that Consensys – and by extension other companies – is an unlicensed brokerage firm engaged in securities trading. That’s probably a losing argument, too, but it’s the mark of Gensler, who has treated the crypto regulatory process as a personal vendetta, to dig in all the way. The result for the crypto industry is that it has won another battle, but the war continues.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
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World Currency has resumed iris scanning in Kenya after regulators abandoned a year-old privacy investigation that had halted operations. (TechCrunch)
The price of private shares of crypto companies like Kraken, Circle, On-Chain AnalysisAnd Ripple have surged this year amid rumors that the bull market would lead to long-awaited IPOs. (Bloomberg)
Bitcoin is down about 10% this month as the price has fallen below $64,000, although some technical analysts predict a rally is underway. (CoinDesk)
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