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Consensys

David Vs. Goliath? Crypto Firm Consensys Sues SEC Over Ethereum Regulation

Christian Encila
by Christian Encila
1 year ago
·
Posted in Crypto News
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

Consensys, a prominent Ethereum development company, has fired the latest salvo in the ongoing battle between the crypto industry and the US Securities and Exchange Commission (SEC). The company filed a lawsuit on April 25th, accusing the SEC of an “unlawful seizure of authority” over Ethereum, the world’s second-largest cryptocurrency by market capitalization.

Related Reading: Ethereum ETFs On Hold? US Regulators Expected To Block Spot Products In May

The lawsuit centers around the SEC’s recent actions towards Consensys, particularly its popular MetaMask wallet product. MetaMask allows users to store, manage, and trade cryptocurrencies, including Ethereum (ETH). However, the SEC appears to be taking aim at specific features within MetaMask, like its staking and swap functionalities.

Consensys Pushes Back On Security Classification

The company is seeking a definitive court ruling that declares ETH is not a security. This classification is crucial, as securities regulations can significantly impact how cryptocurrencies are traded and offered. Consensys argues that Ethereum, with its decentralized network and lack of a central issuer, doesn’t meet the traditional definition of a security.

The case also explores MetaMask’s functionality. According to the firm, the wallet is just an interface and not a broker. By asserting that MetaMask never retains user assets nor handles transaction execution directly, they effectively distance themselves from any possible infraction of securities regulations.

According to Joe Lubin, co-founder of Ethereum and founder/CEO of Consensys:

We don’t take this step lightly, but we feel compelled to act. Ethereum is for everyone.

Consensys Cites Inconsistent Regulatory Landscape

Further complicating the situation is the SEC’s seemingly contradictory stance on Ethereum. The lawsuit references a 2018 speech by former SEC director Bill Hinman, where he classified Ethereum as a commodity, not a security.

Additionally, the firm argues that the SEC’s sister agency, the Commodity Futures Trading Commission (CFTC), already oversees derivative products tied to Ethereum. This perceived overlap in regulatory jurisdiction strengthens Consensys’ argument against the SEC’s recent actions.

Ether market cap currently at $384 billion. Chart: TradingView.com

Leaning On Legal Precedents

The lawsuit also invokes the “major questions doctrine,” a legal principle that limits the power of federal agencies when their actions have broad economic or political implications. Consensys argues that the SEC’s attempt to regulate Ethereum falls under this doctrine and requires explicit Congressional authorization. However, the effectiveness of this argument remains uncertain, as two judges have already rejected similar claims from other crypto companies.

Related Reading: Charity Gets A Digital Boost: $2 Billion In Crypto Donations Empower US Causes

Wider Implications For Crypto Industry

The Consensys lawsuit is a significant development with potential ramifications for the entire crypto industry. A court ruling in favor of Consensys could establish a clearer regulatory framework for Ethereum and similar cryptocurrencies. Conversely, a victory for the SEC could empower the agency to exert greater control over the crypto space, potentially leading to stricter regulations and increased scrutiny for companies like Consensys.

Featured image from Zachary Fruhling, chart from TradingView

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Christian Encila

Christian Encila

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Christian, a journalist and editor with leadership roles in Philippine and Canadian media, is fueled by his love for writing and cryptocurrency. Off-screen, he's a cook and cinephile who's constantly intrigued by the size of the universe.

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