ConsenSys filed a lawsuit on April 25th alleging that the U.S. Securities and Exchange Commission (SEC) abused its authority to regulate Ethereum (ETH).
The lawsuit alleges that the SEC aims to unlawfully regulate Ethereum through enforcement actions against various companies, including Consensys, and that this constitutes “aggressive and unlawful” excesses.
Consensys plans to prove that the SEC lacks the legal authority to regulate ETH, its user-controlled software interface, or the Ethereum blockchain more broadly.
Consensys wants the court to declare that Ethereum is not a security and that the company does not operate MetaMask to act as a broker or sell securities. It also wants the court to declare that any legal action or investigation based on those grounds exceeds the SEC’s authority.
Additionally, Consensys is seeking an injunction to prevent ongoing SEC investigation or future enforcement actions against the MetaMask wallet and related ETH sales. The SEC warned Consensys of potential legal action in a Wells notice and conference call on April 10. Metamask’s staking and swap features are a concern.
three claims
There are three prongs to the lawsuit. Consensys initially argued that the SEC only has jurisdiction over securities, and previously agreed that ETH is not a security.
Consensys second argued that the SEC’s approach misclassifies non-financial platforms as financial applications. It was argued that ETH supports applications on Ethereum and therefore has non-financial utility separate from its role as a commodity. The company also said the SEC does not have the authority to regulate technological developments on the Internet in that way.
Finally, Consensys argued that MetaMask and other applications allow users, rather than stockbrokers, to buy, sell, and transfer ETH with broader access.
The case, filed in the U.S. District Court for the Northern District of Texas, names the SEC and its chairman, Gary Gensler, as defendants.
broader meaning
Whether the SEC considers Ethereum a security is a long-standing issue, and the issue will be relevant to the compliance efforts of any company or project that handles ETH.
Fortune reported on March 20 that the SEC subpoenaed numerous cryptocurrency companies that collaborated with the Ethereum Foundation. The Ethereum Foundation itself appears to have received a subpoena from unknown state authorities at the time of reporting.
Uniswap, a company in the Ethereum ecosystem, received a notice from Wells on April 10 warning of potential costs. However, it is unclear whether the SEC’s potential charges against Uniswap are directly related to ETH.
Whether the SEC treats ETH as a security may also affect the approval of a spot Ethereum ETF. SEC Chairman Gary Gensler designated Bitcoin a non-secure commodity following the approval of a spot Bitcoin ETF in January, emphasizing that the current decision applies only to those assets.