A bitter legal battle between the crypto industry and the Securities and Exchange Commission grew more intense on Thursday as ConsenSys, a prominent backer of the Ethereum blockchain, filed a lawsuit against the agency in Texas federal court. The complaint seeks to end the impending SEC lawsuit against the company over the features of its popular MetaMask wallet, but also asks the court to resolve one of the largest legal uncertainties hanging over the crypto industry, saying It has been noted that Ethereum’s digital token, Ether, is not. Security.
In its 34-page legal filing, ConsenSys used dramatic language to argue that the SEC’s efforts to impose jurisdiction on Ethereum are illegal and a threat to blockchain technology more broadly.
“The SEC’s unlawful seizure of rights over ETH will spell disaster for the Ethereum network and ConsenSys. The complaint states that every holder of ETH, including ConsenSys, would fear a violation of securities laws if he or she transferred ETH on the network. “This would prevent use of the Ethereum blockchain in the United States, killing one of the Internet’s greatest innovations.”
The new lawsuit comes as SEC Chairman Gary Gensler has launched an aggressive enforcement campaign against leading companies in the crypto sector, including Coinbase and Uniswap. In recent weeks, the campaign has included a wave of subpoenas from companies and developers for documents related to their dealings with the nonprofit Ethereum Foundation, which supports the development of the blockchain.
Gensler’s strategy has angered many in the crypto industry who have complained that the SEC has failed to provide clear rules or create a regulatory model that takes into account the unique characteristics of blockchain technology. Gensler has disputed this, claiming that existing securities laws are clear and sufficient, and the crypto industry refuses to follow them.
The controversy over Ethereum has become particularly heated because the SEC has repeatedly indicated in the past that the blockchain’s tokens, like Bitcoin, are not securities and therefore outside its jurisdiction. This includes a landmark speech from 2018 where a senior official said Ethereum had become “sufficiently decentralized” as well as the agency’s decision last year to allow Ethereum futures trading – an implicit acknowledgment that Ether is a commodity. Meanwhile, video of Gensler, in his role as a private citizen, has surfaced in which he tells hedge funds in 2018 that Ethereum is not a security.
However, these precedents have failed to discourage Gensler, who is using a recent feature of Ethereum, known as staking, as the basis for a recent legal campaign.
A warning notice and an advance notice
The ConsenSys complaint filed Thursday shows that the SEC issued a so-called Wells Notice earlier this month, which describes a formal letter warning that the agency intends to sue a firm. holds, and often a settlement is reached soon thereafter. The complaint states that, in related phone calls, the SEC told ConsenSys that MetaMask was operating as an unlicensed broker dealer.
According to ConsenSys, the SEC objects to MetaMask providing a means for users to stake Ethereum on their behalf. Staking is a relatively new process for Ethereum, introduced on a blockchain-wide basis in September 2022, replacing energy-intensive mining with a system of validators who pledge collateral to become a trusted validator. .
in an interview with Luck, ConsenSys founder Joe Lubin described as “absurd” the theory that staking transformed Ethereum from a commodity to a security.
“The act of staking is really just posting a security bond so that you can get paid for contributing labor and resources to help operate the Ethereum protocol. Now they are trying to turn it into some kind of investment contract,” Lubin said.
The SEC did not immediately respond to a request for comment. Luck On the agency’s view regarding the lawsuit or the legal status of staking.
Lubin also said that Gensler’s legal position appears to be an attempt to justify the SEC blocking the overall growth of crypto and blocking pending applications by companies to launch spot ETFs for Ethereum following the massive popularity of Bitcoin ETFs. .
“They’re trying to regulate a technology on its own merits, which is not what the SEC should be doing. They are trying to suppress certain types of innovation. And they’re trying to do that because maybe they see the Ether Spot ETF as a floodgate that is going to bring a lot of capital into our ecosystem,” Lubin said.
The ConsenSys lawsuit was filed in Texas, coinciding with a broader strategy by the crypto industry to launch a final legal appeal to the U.S. Court of Appeals for the Fifth Circuit. The Circuit has shown more skepticism of the agency’s actions than other courts and, if the industry can win a favorable decision, it will likely appeal to the Supreme Court.
It is currently unclear what will happen in the event that the SEC chooses to file a lawsuit on its own to comply with the Wells notice rather than resolve the issues with ConsenSys in a Texas court.
The complaint itself seeks several additional rulings from the court in addition to declaring that Ethereum is not a security. These include declarations that MetaMask is not a broker dealer, and that the SEC is violating the Administrative Procedure Act and the Constitution’s due process guarantees. It also seeks to prevent the SEC from conducting any investigation on the grounds that Ethereum is a security.
