Consensys, a major Ethereum development company, has fired the latest salvo in the ongoing battle between the crypto industry and the United States Securities and Exchange Commission (SEC). The company filed a complaint on April 25, accusing the SEC of “unlawfully taking 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 trade cryptocurrencies, including Ethereum (ETH). However, the SEC appears to be targeting specific features of MetaMask, such as its staking and trading features.
Consensys pushes back security classification
The company is seeking a definitive court ruling declaring that ETH is not a security. This classification is crucial because securities regulation can have a significant impact on how cryptocurrencies are traded and offered. Consensys argues that Ethereum, with its decentralized network and lack of a central issuer, does not meet the traditional definition of a security.
The case also explores the functionality of MetaMask. According to the firm, the wallet is only an interface and not a broker. By stating that MetaMask never retains user assets or directly manages trade execution, they are effectively distancing themselves from any possible 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 in which he classified Ethereum as a commodity and not a security.
Additionally, the company claims that the SEC’s sister agency, the Commodity Futures Trading Commission (CFTC), already oversees derivatives products linked to Ethereum. This perceived overlap in regulatory jurisdiction strengthens Consensys’ argument against the SEC’s recent actions.
Ether market cap currently at $384 billion. Chart: TradingView.com
Rely on legal precedents
The lawsuit also invokes the “major issues doctrine,” a legal principle that limits the power of federal agencies when their actions have broad economic or political implications. Consensys argues that the SEC’s attempt to regulate Ethereum falls under this doctrine and requires explicit authorization from Congress. However, the effectiveness of this argument remains unclear, as two judges have already rejected similar claims from other crypto companies.
Wider Implications for the Crypto Industry
The Consensys lawsuit represents a significant 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 increased oversight of companies like Consensys.
Featured image by Zachary Fruhling, chart by TradingView
