(Kitco News) – Cryptocurrency companies continue to push back against the regulatory crackdown spearheaded by the Securities and Exchange Commission (SEC) as Consensys, a leading blockchain and web3 software technology company that specializes in the Ethereum (ETH) ecosystem, has filed a lawsuit in the U.S. District Court for the Northern District of Texas that accuses the regulator and five commissioners of intending to classify Ethereum as a security.
“The complaint highlights how the SEC is attempting to unlawfully regulate Ether through ad hoc enforcement actions against Consensys and possibly others – the latest examples of aggressive and unlawful SEC overreach,” Consensys said in a press release. “If allowed to expand its regulatory purview, the SEC would effectively destroy value for hundreds of millions of Ether holders and bring use of the Ethereum blockchain in the United States to a halt, crippling the technological evolution of the internet.”
Consensys said the goal in filing the lawsuit was to “ensure that Ethereum remains a vibrant and indispensable blockchain platform and the foundation for countless new web3 innovations, technologies, and products.”
"The case we have filed today is intended to preserve access for the thousands of developers, market participants, and institutions who have a stake in the world's second-largest blockchain," said Joe Lubin, Co-founder of Ethereum and Founder/CEO of Consensys. "The SEC cannot be allowed to arbitrarily expand its jurisdiction to regulate what is plainly and by the SEC's own prior admission a commodity.”
Lubin added that he hopes the lawsuit will bring greater attention to “and ultimately halt the SEC's reckless approach and restores the kind of regulatory certainty and sanity that is so essential to web3 technologies and a well-functioning innovation economy.”
The lawsuit seeks the court's confirmation that the SEC has no legal authority to regulate Ether, user-controlled software interfaces built on Ethereum, or the Ethereum blockchain in general.
The reasoning behind this argument is threefold.
“The SEC only has jurisdiction over securities, and up until recently has agreed that Ether, the digital good that permits users to access and transact on the Ethereum network, is not and should not be treated as a security,” Consensys said. The SEC also “has no legal authority to regulate the technological evolution of the internet.”
“Ether can be traded as a commodity (like oil), but it is also essential to the technological development of applications built on Ethereum – including applications that have clear, non-financial utility for vital sectors like healthcare, energy, transport, media, agriculture, and beyond,” Consensys argued. “The SEC's approach would make it impossible for developers in the U.S. to build on Ethereum, because it would misclassify non-financial platforms as financial applications and effectively end U.S. transactions in Ether, imposing SEC registration requirements that lack any legal basis and would be impossible to comply with.”
The third reason is that “Applications that allow people to buy, sell, and transfer Ether on their own are not securities brokers,” the release said.
“One of Consensys' products, the MetaMask wallet, gives users everything they need to explore web3; from managing their identity, sending and receiving cryptocurrency, to connecting to decentralized applications built on Ethereum,” they noted. “Declaring a software developer building user-controlled tools a securities broker would effectively block web3 developers from continuing to build next-generation applications themselves.”
The lawsuit has four primary objectives. First, it seeks a declaration that ether is not a security, and therefore, the SEC's investigation into Ether and Ethereum and any resulting enforcement actions exceed its regulatory authority.
Second, “any enforcement action against Consensys premised on Ether being a security or Ether transactions being securities transactions would violate due process and fair notice,” they argued.
Third, Consensys is seeking a declaration that the firm “neither acts as a broker nor offers or sells securities through the Swaps and Staking functionality of its MetaMask wallet software.”
Finally, the firm wants it known that “any investigation or enforcement action against Consensys premised on it acting as a broker or offering and selling securities through its MetaMask software would exceed the SEC's authority,” the release said. “Consensys further seeks an order enjoining the SEC from continuing to investigate or bringing an enforcement action with respect to its sales of Ether and as to MetaMask.”
“Ethereum is a world-changing technology, and Ether itself has the potential to be a significant driver of the U.S. economy of the future," said Lubin. “Unlawful SEC regulation, however, threatens to jeopardize this potential and impedes the U.S.'s ability to use blockchain technology as the basis for countless new innovations and technologies – even as other nations race ahead.”
“We are therefore taking decisive, proactive steps on the industry's behalf at this critical moment for the future of Ethereum, other decentralized protocol technologies and indeed the entire next chapter of the internet's development,” he added. “We are committed to the cause and resolved to win.”
Coinbase Chief Legal Officer Paul Grewal backed up Consensys in a post on X, saying everyone – including the SEC – knows that Ether is a commodity, and it's time for the regulator to publicly admit it.
I know ETH is a commodity. You know ETH is a commodity. The CFTC knows ETH is a commodity. It's time for the SEC to admit that it still knows ETH is a commodity too. No more games. Thank you to @Consensys for standing up against the SEC's unlawful expansion of authority. https://t.co/8w7A4PBwUK
— paulgrewal.eth (@iampaulgrewal) April 25, 2024
