ConsenSys faces law
The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ethereum software provider ConsenSys over its MetaMask service, alleging that the wallet tool operated as an unregistered broker and engaged in the offer and sale of securities. The suit also targets Ethereum staking services Lido (LDO) and Rocket Pool (RPL), which MetaMask uses to power its staking feature.
This enforcement action is part of the SEC’s ongoing effort to classify a significant portion of the crypto market as securities. Following the unexpected approval of the Ether ETF last month, this suit confirms suspicions that the SEC may attempt to regulate liquid staking derivatives of ETH, such as Lido’s stETH token. The agency has previously secured settlements related to staking services, including with Kraken, and Coinbase has ended its staking services in some states after reaching agreements with state securities regulators.
MetaMask, the most widely used wallet for Ethereum and various other blockchains, allows users to store cryptocurrency bought on other platforms and to buy and sell digital assets directly in-app through its “Swaps” service. This feature is one of the key issues in the SEC’s lawsuit, which was filed Friday in the U.S. courthouse in the Eastern District of New York.
ConsenSys collects a fee for providing this service and, according to the SEC’s suit, has facilitated over 36 million crypto transactions in the past four years, with at least 5 million of these transactions involving “crypto asset securities.” The SEC identified Polygon (MATIC), Mana (MANA), Chiliz (CHZ), The Sandbox (SAND), and Luna (LUNA) as securities, and suggested other digital assets might also be securities.
The SEC also scrutinized MetaMask’s “staking” feature, which allows users to deposit assets to secure the Ethereum blockchain in exchange for interest. This feature is powered by Lido and Rocket Pool, two prominent names in decentralized finance. Users can deposit into these third-party staking services and earn a tradable receipt called a liquid staking token in return.
The SEC claims that MetaMask’s integrations with Lido and Rocket Pool constitute “investment contracts,” implying that the popular stETH and rETH liquid staking tokens are unregistered securities. According to the SEC, ConsenSys has offered and sold tens of thousands of unregistered securities on behalf of liquid staking program providers Lido and Rocket Pool since at least January 2023.
A ConsenSys representative told CoinDesk on Friday that the company “fully expected the SEC to follow through on its threat to claim our MetaMask software interface must register as a securities broker.” The representative accused the SEC of regulatory overreach and pursuing an anti-crypto agenda through ad hoc enforcement actions.
The lawsuit follows ConsenSys’s recent announcement that the SEC had ended investigations into the company related to Ethereum, based on two letters from the SEC dated June 18. These letters cautioned that the SEC might still bring enforcement actions on other issues, although they did not mention MetaMask.
ConsenSys, led by Ethereum co-founder Joe Lubin, had previously sued the SEC in April, seeking judicial relief to prevent the SEC from classifying MetaMask as a broker or asserting that its staking service violated federal securities laws. The lawsuit, filed in Texas, also sought a court order declaring ether (ETH) not to be a security and to end the SEC’s investigation into ConsenSys.
“We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask,” said the ConsenSys representative. “We will continue to vigorously pursue our case in Texas for a ruling on these issues because it matters not only to our company but the future success of web3.”
