Consensys is sued, and the US SEC takes action again on pledge

Written by: Mary Liu, BitpushNews

The recent regulatory downturn has been very intense. On June 28, local time, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Consensys in the Brooklyn Federal Court in New York, less than two weeks after the SEC notified Consensys that it had ended its investigation into Ethereum 2.0.

Not registered as a broker

The SEC accused the company of using its digital assetswallet MetaMask “engaged in the offering and sale of securities” and was an “unregistered broker-dealer” and claimed that Consensys earned more than $2.Xiaobai Navigation$500 million in fees.

The SEC said Consensys “positioned itself as a venue for buying and selling crypto assets (including crypto asset securities), recommended trades with the ‘best’ value (as Consensys itself stated), accepted investor orders, routed investor orders, processed customer assets, executed trade parameters and instructions on behalf of customers, and received compensation based on trades.”

“ConsenSys failed to register as a broker-dealer and failed to register the offer and sale of certain securities, in violation of the federal securities laws,” the court filing states.

Targeting staking

The regulator claims that ConsenSys sold thousands of unregistered securities through staking program providers Lido and Rocket Pool, which in turn issued liquid staking tokens called stETH and rETH.Token, in exchange for pledged assets.

The agency said that investors provided ETH to Lido and Rocket Pool, which was then pooled and staked onBlockchainto obtain returns that investors might not be able to obtain on their own.

The SEC said: “After receiving the ETH from investors, Lido and Rocket Pool will issue a new crypto asset to investors, stETH or rETH, representing the investors’ pro rata interest in the equity pool and its rewards.” The agency added that Lido and Rocket Pool use investors’contractIt is sold and provided in the form of securities.

The SEC also said Consensys itself “acted as brokerage for crypto asset securities transactions” and designated MATIC, MANA, CHZ, SAND, and LUNA as securities, which have been the subject of past enforcement actions.TokenAll have been classified as securities.

“These crypto-asset securities were offered and sold on the Conensys platform from the date of their first offer or sale and continue to be investment contracts and, therefore, securities,” the court document states.

DeFiLlama data shows that Lido and Rocket Pool are the two largest liquidity staking protocols on Ethereum, holding a total of $37.6 billion in staking TVL. After the news leaked, the protocol's native token fell rapidly, and LDO plummeted 12% in 30 minutes.

This is not the first time the SEC has sued a collateral service provider. In February this year,cryptocurrencyexchange Kraken settled with the SEC for $30 million and shut down its staking services for U.S. customers following the lawsuit. Another industry leader is Coinbase, whichexchangeIt has been fighting the SEC's argument in court that pledges are securities.

Do the allegations hold water?

Factory Labs CEO Nick Almond said the SEC’s argument for forcing open-source crypto wallets to register as broker-dealers is wrong.

“For me, it’s about custody — the degree of sovereign control that users have over their assets,” he said. “If they don’t have custody of their funds at all, they’re not a broker-dealer.” Traditionally, a broker-dealer is a party that trades securities on behalf of others.

For example, according to the official definition of the US SEC, "a broker-dealer is any person engaged in the business of buying and selling securities for the accounts of others", but MetaMask's Swap service is essentially a "robot" controlled by users who want to execute their own transactions.

This view is consistent with the interpretation of U.S. District Judge Katherine Failla, who dismissed similar charges brought by the SEC against Coinbase Wallet in the case on March 27. The judge said at the time that since it is a self-custodial wallet and users can control their own funds, neither Coinbase nor Coinbase Wallet can be called brokers.

Tuyo 创始人 Jorge Izquierdo 表示， Consensys 和 MetaMask 属于同一情况，他在 X 平台发文称，提供非托管智能合约支持和「为任何随机交换提供 UI」之间没有区别。唯一的问题是，Consensys 会收取提供交换服务的费用。

The same goes for the accusations against the MetaMask staking service, which acts as an “intermediary” between users and decentralized protocols Lido and Rocket Pool that don’t actually exist, with Nick Almond describing the staking service as more of a “UI interface.”

Almond 表示：「将 UI 前端等同于银行或其他类似事物的想法有点蠢，因为任何人都可以直接与智能合约交互，甚至可以在本地运行前端。」

In other words, as long as Ethereum keeps running, MetaMask is just a way to access the protocol, and the protocol will exist indefinitely.

So far this year, the SEC has issued notices, filed lawsuits, or reached settlements with a number of crypto companies focused on Ethereum and DeFi, including ShapeShift, TradeStation, and Uniswap. According to Bloomberg, the agency is also investigating the Ethereum Foundation.

Consensys responded to the new lawsuit by saying: “We firmly believe that the SEC is not authorized to regulate software interfaces such as MetaMask, and we will continue to vigorously seek a ruling on these issues in Texas because they are not only important to our company, but also to the web3 Future success is also important.”

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