The U.S. Securities and Exchange Commission filed a lawsuit. Ethereum ETH
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Incubator Consensys claimed its internal wallet MetaMask on Friday. It broke several laws on the books..
In particular, MetaMask’s “swap” feature, which allows users to exchange one token for another, made it an unregistered broker. The securities watchdog also argued that MetaMask’s staking service, which provides an easy way to interact with liquid staking protocols including Lido and Rocket Pool, should be classified as an unregistered securities program.
The SEC’s claim that Consensys “guaranteed” millions of dollars in illegal securities trading by providing the software that made it possible seems damning, but some experts think the agency’s case is weak.
Factory Labs CEO Nick Almond said the SEC’s argument that open source cryptocurrency wallets must register as broker-dealers is incorrect.
Pursuing smart contracts
“For me, it’s about archival, the degree to which users have sovereign control over their assets. If you don’t manage your money and manage it, you don’t have a broker-dealer.” Almond spoke to The Block in a direct message. Traditionally, a broker-dealer is a person who brokers securities transactions on behalf of others.
for example, SEC’s written definition, “A broker-dealer is any person engaged in the business of buying and selling securities for the accounts of others.” Although several engineers at Consensys are working to improve MetaMask, the swapping service is essentially a robot controlled by users who want to execute their own transactions.
That was the interpretation of U.S. District Judge Catherine Failla, who dismissed similar SEC charges against Coinbase Wallet in a case pending on March 27. Coinbase or Coinbase Wallet cannot be considered an intermediary because it was a self-custodial wallet in which the user controlled the funds.
According to Tuyo founder Jorge Izquierdo, the same will likely apply to Consensys and MetaMask.I am the one who said in the post on X that there is no difference between providing non-custodial smart contract support and “providing a UI for random swaps”. The only problem is that Consensys takes a fee for providing the swap service.
Secure the challenge
A similar argument could be made about the prosecution of MetaMask’s staking service, which acts as an intermediary between users and decentralized protocols Lido and Rocket Pool. According to the SEC, “Consensys offered and sold tens of thousands of unregistered securities on behalf of liquid staking program providers.”
But again, this may be putting intermediaries between transactions that don’t actually exist. Almond described the staking service as more like a UI interface.
“The idea that the front end is like a bank or its equivalent is a bit silly, since anyone can interact directly with a smart contract or even run the front end locally.” Almond said. In other words, MetaMask is just one way to access a protocol that will survive indefinitely as long as Ethereum operates.
“So essentially, regulation doesn’t stop action; it just makes it more inaccessible to everyday people, which I think is the desired outcome,” he added.
It is also worth noting that the SEC is also claiming that Lido’s stETH and Rocket’s rETH are securities, as neither platform is registered. However, as many cryptocurrency law experts have long pointed out, there is currently no viable way for decentralized applications to register with the SEC.
This is what companies like Coinbase and Consensys do. self-releasedIndependent litigation against agencies seeking regulatory clarity.
“We firmly believe that the SEC is not authorized to regulate software interfaces like MetaMask. We will continue to aggressively litigate these issues in Texas, as they are critical not only to our company but to the future success of web3,” Bill Hughes, Consensys’ chief legal counsel and director of global regulatory affairs, said in a statement.
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