The recent subpoena by the SEC against ConsenSys, regarding its staking service offered through MetaMask, has raised crucial questions about the application of securities regulations in the context of blockchain technologies.
The SEC has accused MetaMask of acting as a unregistered broker and has contested the legality of its staking service, claiming that it violates current securities laws.
This case not only tests the regulatory boundaries of decentralized finance, but it could also outline the regulatory future of the blockchain industry in the United States and beyond. Let’s see all the details below.
The accusations of the SEC against ConsenSys and the case against MetaMask
As anticipated, the Securities and Exchange Commission (SEC) of the United States has sued ConsenSys, the Ethereum software provider, for its MetaMask service.
According to the SEC, the MetaMask wallet tool operated as an unregistered broker, “dealing with the offering and sale of securities”.
The lawsuit also targeted the staking services of Ethereum Lido (LDO) and Rocket Pool (RPL), third-party platforms used by MetaMask for its staking function.
This enforcement action represents the latest attempt by the SEC to classify a large part of the cryptocurrency market as securities.
After the approval of the ETF on Ether last month, the lawsuit confirms the suspicions that the SEC might attempt to include liquid staking derivatives of ETH, such as Lido’s stETH token, under its regulatory mandate.
The agency has already regulated staking services with other companies, such as Kraken. On the other hand, Coinbase had to terminate its staking services in some states after an agreement with state securities regulators.
MetaMask, the most used wallet for Ethereum and other blockchain, allows users to store cryptocurrencies. Additionally, it enables the purchase and sale of digital assets directly in-app through the “Swaps” service.
The accusations of the SEC: investment contracts and unregistered securities
The SEC has filed the lawsuit in the United States court in the Eastern District of New York.
Specifically highlighting that ConsenSys charges a commission for this service, facilitating over 36 million crypto transactions in the last four years. Of these “at least 5 million” involve “cryptographic asset securities”.
The SEC has identified some assets as securities, including Polygon (MATIC), Mana (MANA), Chiliz (CHZ), The Sandbox (SAND), and Luna (LUNA). It has also suggested that other digital assets could be included.
The “staking” function of MetaMask, powered by Lido and Rocket Pool, allows users to deposit assets to secure the blockchain of Ethereum in exchange for interest.
According to the SEC, the integrations of MetaMask with Lido and Rocket Pool are equivalent to “investment contracts”, considering their popular liquid staking tokens stETH and rETH as unregistered securities.
The response of ConsenSys and the implications for web3
A representative of ConsenSys stated that the company expected the SEC’s action. Specifically, stating that the commission has pursued an anti-crypto agenda with ad hoc enforcement actions.
The cause of Friday comes a few weeks after ConsenSys had announced the conclusion of the investigations by the SEC. However, none of the letters received mentioned MetaMask.
ConsenSys, led by Ethereum co-founder Joe Lubin, has already sued the SEC in April to obtain a judicial ruling declaring MetaMask not a broker and that its staking service did not violate federal securities laws.
The lawsuit also asked to declare ether (ETH) not to be a security and to end the SEC’s investigation into ConsenSys. The representative of ConsenSys stated the following in this regard:
“We are confident in our position that the SEC has not been granted the authority to regulate software interfaces like MetaMask. We will continue to vigorously pursue our case in Texas to resolve these issues because it is important not only for our company, but for the future success of web3.”