Consensys, a prominent ethereum development company, has fired the latest salvo in the ongoing battle between the crypto industry and the US Securities and Exchange Commission (SEC). The company crypto-regulations/defend-ethereum” rel=”nofollow noopener” target=”_blank”>filed a lawsuit on April 25, accusing the SEC of an “illegal seizure of authority” over ethereum, the world’s second-largest cryptocurrency by market capitalization.
The lawsuit focuses on the SEC's recent actions toward Consensys, particularly its popular MetaMask wallet product. MetaMask allows users to store, manage and exchange cryptocurrencies, including ethereum” target=”_blank” rel=”noopener nofollow”>ethereum (eth). However, the SEC appears to be targeting specific features within MetaMask, such as its staking and trading functionalities.
Consensys rejects security classification
The company is seeking a final court ruling declaring that eth is not a security. This classification is crucial as securities regulations can significantly affect the way cryptocurrencies are traded and offered. crypto/2024/04/25/sec-sued-over-ethereum–crypto-firm-asks-court-to-state-token-is-not-a-security/” target=”_blank” rel=”noopener nofollow”>consensus argues that ethereum, with its decentralized network and lack of a central issuer, does not meet the traditional definition of value.
The case also explores the functionality of MetaMask. According to the company, the wallet is just an interface and not a broker. By stating that MetaMask never holds users' assets or handles transaction execution directly, they effectively distance themselves from any potential violation of securities regulations.
According to Joe Lubin, co-founder of ethereum and founder/CEO of Consensys:
We do not take this step lightly, but we feel compelled to act. ethereum is for everyone.
Consensys cites inconsistent regulatory landscape
Further complicating the situation is the SEC's seemingly contradictory stance on ethereum. The lawsuit references a 2018 speech by former SEC Director Bill Hinman where he classified ethereum as a commodity, not a security.
Additionally, the firm argues that the SEC's sister agency, the Commodity Futures Trading Commission (CFTC), already oversees derivative products linked to ethereum. This perceived overlap in regulatory jurisdiction strengthens Consensys' argument against the SEC's recent actions.
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Ether market cap currently at $384 billion. Chart: TradingView.com
Relying on legal precedents
The lawsuit also invokes the “important issues doctrine,” a legal principle that limits the power of federal agencies when their actions have broad economic or political implications. Consensys maintains that the SEC's attempt to regulate ethereum falls within this doctrine and requires explicit authorization from Congress. However, the effectiveness of this argument remains uncertain, as two judges have already rejected similar claims from other crypto companies.
Broader implications for the crypto industry
The Consensys lawsuit is a major development with potential ramifications for the entire crypto industry. A court ruling in favor of Consensys could establish a clearer regulatory framework for ethereum and similar cryptocurrencies. Conversely, an SEC victory could allow the agency to exert greater control over the crypto space, which could lead to stricter regulations and greater scrutiny for companies like Consensys.
Featured image by Zachary Fruhling, TradingView chart
