The developer of the Metamask cryptocurrency wallet, Consensys, has filed a lawsuit against the United States Securities and Exchange Commission (SEC) pre-empting possible regulatory enforcement action against the company. Consensys is seeking declaratory relief that the Ether cryptocurrency, the native token of the Ethereum blockchain, is not a security and that its Metamask Swap and Staking products do not violate securities laws. Consensys is also seeking injunctive relief against investigations and enforcement action against Consensys, including on the basis that it violates the US Fifth Amendment protection of due process.
Consensys offers software solutions as well as blockchain technology and services to Web3 participants, working closely with the Ethereum Foundation. The complaint, filed in the United States District Court for the Northern Division of Texas, referred to a Wells Notice received by Consensys, foreshadowing possible SEC enforcement action against Consensys and alleging Consensys violated securities laws by offering the Metamask Swap and Staking products.
Consensys took to their website to explain their action against the SEC.
We took this step for two very basic reasons: (1) the SEC should not be allowed to arbitrarily expand its jurisdiction to include regulating the future of the internet; and (2) the SEC’s reckless approach is bringing chaos to developers, market participants, institutions, and nations who are building or already managing critical systems running on Ethereum, the world’s largest platform for decentralized applications.
Consensys' action reflects a growing frustration in the industry that the SEC's approach to Web3 and cryptocurrency involves a fundamental mischaracterization of the foundational technology that Web3 is built on and represents a blatant refusal to work with the industry to create clear rules and a pathway to compliance.
Consensys' Founder and CEO, Joe Lubin (who is also a Co-Founder of the Ethereum blockchain), stated in the company's blog post:
We have time and time again witnessed the current SEC contradict itself with ever-changing views on the blockchain, consistently mischaracterizing this technology and what is built on it as a shallow and doomed investment scheme, rather than as the breakthrough technology it is.
In Australia, the Australian Securities and Investments Commission (ASIC) has adopted aspects of the United States' regulation by enforcement approach promising to test the regulatory perimeter insofar as it considers that existing financial services laws apply to crypto-asset related products and service (with similarly mixed results). However, ASIC is also working closely with Treasury on regulatory reforms to establish a licensing regime for digital asset custodians and intermediaries.
Consensys' action highlight the US crypto industry's increasingly combative stance in seeking to push back on the SEC's enforcement strategy. The SEC approach has seen mixed results, with some notable defeats including its failure to establish that the XRP token was inherently a security. With the SEC now increasingly targeting what many regard as the "good actors" in the industry, the US crypto industry increasingly looks set for a showdown with the SEC over the future of Web3, despite ongoing US legislative efforts to establish clear ground rules for the industry.
By Michael Bacina, Steven Pettigrove and Luke Misthos