Joe Lubin is in a fight with the Securities and Exchange Commission. The financial regulator is not only waging war against Ethereum, he says, but is also trying to gain jurisdiction over the future of the Internet. So Lubin has decided to hit back.
In 2015, Lubin was part of the team that created Ethereum, the computer network that hosts the world’s second-largest cryptocurrency, known as ETH. Later that year, Lubin founded Consensys, with the ambition of supporting the development and adoption of Ethereum and creating software products on top of the network. In April, Consensys received an unwanted missive, known as a Wells Notice, from the SEC, informing the company that it was about to be sued. The regulator’s complaint, Consensys was told, had to do with one of the software products from its stable: MetaMask, a crypto wallet that allows users to store cryptocurrency and interact with Ethereum-based applications.
Consensys claims that the SEC notice, which has not been made public, claims that MetaMask has turned the company into an unregistered securities broker-dealer. Specifically, the SEC takes issue with two features of MetaMask: one that allows users to swap between different tokens and another that allows them to lock their tokens in exchange for a regular reward, in a process called staking.
On April 25, Consensys filed a own demand against the SEC. The complaint accuses the regulator of an “unlawful seizure of authority over ETH,” which “has none of the attributes of a security,” the specific type of financial instrument over which the SEC has dominion. If the SEC gets its way “would spell disaster for the Ethereum network,” the complaint alleges.
In its Wells Notice, the SEC stopped short of calling ETH a security, Consensys says, focusing instead on MetaMask’s features. But according to Consensys, the agency has long been quietly conducting research on Ethereum, considering that ETH should be reclassified as such.
That’s not fair, Consensys says, because an SEC director has We previously described ETH as a commodity.not a security, and the Commodity Futures Trading Commission, an independent U.S. financial regulator, has made the same argument. “Consensys built its business in the context of this regulatory consensus,” the lawsuit says.
By filing the lawsuit, Consensys hopes to get itself and Ethereum out from under the SEC, clarifying the limits of its jurisdiction, and encouraging the rest of the crypto industry to retaliate against what it describes as “aggressive and illegal overreach of the SEC.” An SEC spokesperson declined to comment on the specific allegations made by Consensys, saying only that “failure to comply with securities laws deprives investors of critical protections, including rulebooks that prevent fraud and manipulation, adequate disclosures, segregation of client assets, safeguards against conflicts of interest. , supervision by a self-regulatory organization and routine inspection by the SEC. It is investors who are hurt and US financial markets that may suffer.”
The following questions and answers have been edited for brevity and clarity.