The settlement requires a court order to prevent Ether and Metamask from overreach from the SEC
Consensys, the company behind MetaMask, has filed a lawsuit against the US Securities and Exchange Commission (SEC) in an attempt to protect the agency's Ether, the native cryptocurrency of the Ethereum network, as a security control.
The company did not allow the SEC to start the fight.
In a press release released on Thursday, Consensus said that the SEC is revoking its authority to try to regulate Ether as a security. The company believes deregulation stifles innovation and hurts the U.S. economy.
“Ethereum is a world-changing technology, and Ethereum itself has the potential to be a critical driver of the future of the US economy,” said Joe Lubin, founder of Ethereum and founder/CEO of Consensus. “Unlawful SEC regulation, however, threatens this potential and prevents the US from using blockchain technology for countless new innovations and technologies – as other countries race ahead.
Murky Water by US regulations
According to Consensus, the SEC has historically treated Ether as a commodity, not a security. Putting Ether under securities regulation could ultimately harm millions of Ether holders, cripple Ethereum's usefulness in the US, and make it difficult for US developers to build on top of Ethereum.
The company argued that the SEC has no legal right to regulate its own or user-controlled software interfaces built on top of Ethereum, such as MetaMask.
In the latest legal action against the SEC, Consensys is seeking three court rulings. First, they aim to get a notice stating that Ether is not a security.
Second, they hope the ruling will prevent the SEC from taking legal action against deals based on these arguments. Finally, Consensys is seeking a court ruling clarifying that its MetaMask wallet does not act as a broker-dealer.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas, is in response to the SEC's Wells Notice sent to Consensus earlier this month. A Wells notice is typically a formal notice informing recipients that the agency plans to bring civil enforcement action against them for violating securities laws.
The SEC goes wild
Ahead of the settlement, the SEC sent a notice of Wells to Uniswap Labs, the developer behind the main decentralized exchange (DEX) Uniswap. Instead of waiting for the SEC to act, Consensys took up the legal battle.
Securities classification and the Hawaii test are primarily the SEC's primary arguments in precedential cases. So, while the Uniswap team hasn't disclosed why the SEC is targeting Uniswap, the agency may still rely on its classification scheme.
Marvin Amory, Uniswap's chief legal officer, said the SEC wants to pursue Uniswap's responsibilities as an unregistered stock exchange and broker.
Both Uniswap and Consensys have pledged to protect their rights. Uniswap says there is still no legislation specific to the cryptocurrency sector in the US, no promulgated legislation governing crypto exchanges or brokers processing securities transactions, and its UNI token does not meet the requirements of the Hawaii test to be listed as follows. A security.
Ethereum ETFs are banned
Earlier today, Reuters reported that the SEC may reject applications to launch Ethereum exchange-traded funds (ETFs). Sources familiar with the matter say that unlike the in-depth discussions that preceded the approval of multiple bitcoin ETFs in January, the ETF issuers' meetings with the SEC did not contain specifics on what to expect from the products.
Ten issuers, including BlackRock, Greyscale, BitWise, Fidelity, VanEyck and ARK Investment Management, have filed with the SEC to list ETFs that track the price of the Ethereum spot. The SEC is expected to rule on the VanEck and ARK filings on May 23-24, respectively.
Unlike the spot Bitcoin ETF, the growth of the spot Ethereum ETF has shown little promise. Analysts suggest that if the SEC rejects these ETF filings, it could face a new legal battle from ETF issuers.
