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Consensys filed a lawsuit against the US Securities and Exchange Commission (SEC) on ethereum-ecosystem-302127897.html”>April 25th over accusations that the watchdog has exceeded its authority in attempting to regulate ethereum (eth).
The lawsuit alleges that the SEC seeks to illegally regulate ethereum through enforcement actions against several companies, including Consensys, which constitutes “aggressive and unlawful” overreach.
Consensys seeks to demonstrate that the SEC has no legal authority to regulate eth, user-controlled software interfaces, or the ethereum blockchain in general.
Consensys wants the court to declare that ethereum is not a security and that the company does not act as a broker or sell securities by trading MetaMask. He also wants the court to declare that legal actions or investigations based on those grounds would exceed the SEC's authority.
Additionally, Consensys seeks an injunction preventing a continued SEC investigation or future enforcement actions against its MetaMask wallet and related eth sales. The SEC warned Consensys of potential legal action via a notice from Wells and a conference call on April 10. Metamask's staking and trading features are areas of concern.
Three-pronged argument
The demand has three aspects. Consensys stated for the first time that the SEC only has jurisdiction over securities and previously agreed that eth is not a security.
Second, Consensys claimed that the SEC's approach misclassifies non-financial platforms as financial applications. He argued that eth supports applications on ethereum and therefore has non-financial utility separate from its function as a commodity. The firm also said the SEC has no authority to regulate Internet technological development in that way.
Finally, Consensys stated that MetaMask and other apps are not securities brokers, but instead allow users to buy, sell, and transfer eth through broader access.
The case, filed in the United States District Court for the Northern District of Texas, names the SEC and its chairman, Gary Gensler, as defendants.
Broader implications
Whether the SEC considers ethereum a security is a long-standing question, and the issue is relevant to the compliance efforts of any company or project that handles eth.
Fortune reported on March 20 that the SEC had subpoenaed numerous crypto companies that had compromised with the ethereum Foundation. The ethereum Foundation itself apparently received a subpoena from an unknown state authority at the time of the report.
A company in the ethereum ecosystem, Uniswap, received a notice from Wells on April 10, warning of possible charges. However, it is unclear whether the SEC's potential charges against Uniswap are directly related to eth.
Whether the SEC treats eth as a security could also affect the approval of ethereum spot ETFs. SEC Chairman Gary Gensler identified bitcoin as a non-valuable commodity following the approval of bitcoin spot ETFs in January and emphasized that the current decision only applies to the asset.
