Ethereum developer Consensys has filed a lawsuit against the U.S. Securities and Exchange Commission in an attempt to pre-empt an expected enforcement action. The lawsuit is aimed at forcing the SEC to clarify its position on whether the ether cryptocurrency should be classified as a security. Consensys, the maker of the MetaMask digital-asset wallet, was notified earlier this month by the SEC that it planned to take action against the company for allegedly engaging in securities broker-dealer functions and offering unregistered securities.
Founded in 2014 by Ethereum cofounder Joseph Lubin, Consensys was last valued at $7 billion after a $450 million funding round in March 2022. In its complaint, the company revealed that it had received a Wells Notice from the SEC on April 10, indicating the agency’s intent to bring an enforcement action against Consensys for its MetaMask Swaps and MetaMask Staking products. The Swaps product allows users to trade digital assets through decentralized exchanges, while the Staking service connects to services on Ethereum for processing transactions in exchange for more ether.
Uniswap, the world’s most popular decentralized exchange, also received a Wells Notice on the same day as Consensys. While companies have the opportunity to respond to these advisories, the commission ultimately votes on whether to proceed with a contemplated action. The lack of clarity on ether’s status has been a point of frustration, particularly as the SEC faces a May deadline to rule on applications for spot ETFs based on the currency from BlackRock and Fidelity. The legal confrontation highlights concerns over the SEC’s failure to provide clear guidance on the classification of ether as a security.
There is speculation that the SEC and Chair Gary Gensler have flip-flopped on ether’s status in recent years. Former SEC Director of Corporate Finance William Hinman stated in 2018 that ether was no longer considered a security due to its decentralized nature. However, there have been mixed signals from Gensler, who previously stated that ether, along with other cryptocurrencies, was not a security. The industry is urging the court to provide a definitive ruling on whether ether should be classified as a security or a commodity, as this lack of clarity is impacting the market and investor confidence.
Despite the uncertainty surrounding ether’s classification, the price of ether showed minimal movement in response to the lawsuit news, down only 0.8% to $3,142 in the past 24 hours. The outcome of Consensys’ lawsuit against the SEC could have significant implications for the regulatory classification of ether and other cryptocurrencies. The industry is watching closely to see how this legal confrontation will impact the broader crypto market and regulatory landscape. As the SEC faces pressure to provide clarity on ether’s status and the classification of cryptocurrencies in general, this lawsuit could be a pivotal moment in shaping the future of the industry.
