Consensys, the company behind MetaMask, has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in a bid to prevent the agency’s attempt to regulate Ether, the native cryptocurrency of the Ethereum network, as a security.
The company didn’t let the SEC have a chance to start the fight.
In a press release published on Thursday, Consensys claimed that the SEC is overstepping its authority by trying to regulate Ether as a security. The company believes regulatory overreach would stifle innovation and harm the US economy.
“Ethereum is a world-changing technology, and ether itself has the potential to be a significant driver of the U.S. economy of the future,” said Joe Lubin, Co-founder of Ethereum and Founder/CEO of Consensys. “Unlawful SEC regulation, however, threatens to jeopardize this potential and impedes the U.S.’s ability to use blockchain technology as the basis for countless new innovations and technologies – even as other nations race ahead.”
Murky Water in US Regulations
According to Consensys, the SEC has historically considered Ether a commodity, not a security. Putting Ether under securities regulation could ultimately hurt millions of Ether holders, cripple Ethereum’s use in the US, and make it difficult for US developers to build on Ethereum.
The company argued that the SEC has no legal right to regulate either Ether itself or user-controlled software interfaces built on Ethereum, like MetaMask.
With the latest legal action against the SEC, Consensys seeks a threefold court ruling. First, they aim to secure a declaration that Ether is not a security.
Second, they hope the ruling will prevent the SEC from taking legal action against Consensys based on these arguments. Finally, Consensys seeks a court decision clarifying that its MetaMask wallet does not function as a securities broker.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, comes in response to the SEC’s Wells Notice sent to Consensys earlier this month. A Wells Notice is typically a formal notification informing the recipients that the agency plans to bring civil enforcement actions against them for potential violations of securities laws.
The SEC Goes Wild
Before Consensys, the SEC also sent a Wells Notice to Uniswap Labs, the developer behind the major decentralized exchange (DEX) Uniswap. Instead of waiting for the SEC to take action, Consensys initiated the legal battle.
Securities classification and the Howey test are mainly the SEC’s core arguments in precedent cases. Therefore, even though the Uniswap team hasn’t specified the SEC’s reason for targeting Uniswap, it’s highly possible that the agency still relies on the classification method.
Uniswap’s Chief Legal Officer Marvin Ammori said the SEC wants to pursue Uniswap’s responsibility for allegedly being an unregistered stock exchange and brokerage.
Both Uniswap and Consensys vow to defend their rights. Uniswap claimed that in the US, there is still no specific law for the cryptocurrency sector, no case law on crypto exchanges or brokers being declared as processing securities transactions, and its UNI token does not meet the criteria of the Howey Test to be listed as a security.
Ethereum ETFs Blocked
Earlier today, Reuters reported that the SEC will likely reject applications to launch spot Ethereum exchange-traded funds (ETFs). Sources familiar with the matter say ETF issuers’ meetings with the SEC lacked expected detail on the products, unlike the in-depth discussions that preceded the approval of several spot Bitcoin ETFs in January.
Ten issuers, including BlackRock, Grayscale, Bitwise, Fidelity, VanEck, and ARK Investment Management, have filed with the SEC to list ETFs tracking Ethereum’s spot price. The SEC is expected to decide on VanEck’s and ARK’s filings by May 23-24, respectively.
Unlike spot Bitcoin ETFs, the current situation around spot Ethereum ETF progress has shown less optimism. Analysts suggest that if the SEC rejects these ETF filings, it may face a new legal battle from the ETF issuers.
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