SEC boss Gary Gensler. Image from SEC website, license: public domain.

After the US Securities and Exchange Commission announced that it would sue the large New York Ethereum startup Consensys because it was trading securities unlicensed with the Metamask wallet, it filed a preventive lawsuit against the SEC. The process could answer two fundamental questions for crypto.

Major Ethereum company Consensys announces that it will sue the US Securities and Exchange Commission (SEC). This adds another to the numerous court cases between the SEC and the crypto industry. Essentially, the entire industry is currently drowning in litigation, and crypto or crypto regulation could be seen as a massive DoS attack on the judiciary.

Specifically, it’s about the following: Consensys is developing the Ethereum wallet Metamask. For this, it recently received a so-called “Wells Notice” from the SEC. With such a letter, the authority informs companies that it is about to initiate a lawsuit.

Metamask, the popular Web3 wallet, is perhaps the most widely used crypto wallet of all, with around 30 million users.

The SEC is now accusing Consensys of not having the necessary licenses to operate a “broker-dealer” with Metamask. Broker-dealers are financial service providers who trade stocks on behalf of their customers.

In other words: A wallet that allows users to store tokens themselves is guilty of unlicensed securities trading. If the SEC gets away with this, it would more or less be the end of Web3, crypto, blockchain as we know it, in the US.

Consensys now wants to firmly defend itself against this. Clear. For the New York company, not just something, but everything is at stake. Therefore, Consensys responds to the Wells Notice with a preemptive lawsuit.

“Guided by our mission,” explains Consensys founder Josef Lubin personally, “we have taken an important step to secure access to the Ethereum blockchain, and thus also permission-free innovation.”

The SEC, Lubin continued, should not be allowed to arbitrarily expand its jurisdiction to regulate the future of the Internet. Their irresponsible actions are sparking chaos among developers, market participants, institutions and even nations that have already begun building major systems on Ethereum.

The SEC has a clear mission: it regulates stocks and other securities. “And until recently, it has stated that Ether is not a security and should not be treated as such.” Ether (ETH), explains Lubin, “is the native token of the Ethereum blockchain. It can be traded like a commodity (like oil), but it is also essential for the technological development of applications on Ethereum.” The SEC’s approach would make it impossible for developers to build innovative applications on Ethereum.

The Metamask wallet “gives users everything they need to explore Web3.” If it becomes a securities dealer, it would “effectively prohibit Web3 developers from continuing to build next-generation applications.”

Consensys’ lawsuit brings together two essential legal questions for crypto: First, at what point is something a “security”, i.e. a security? The SEC has repeatedly stated that Bitcoin is not one – but is Ethereum not one either? And secondly, do non-fiduciary wallets, like Metamask, also have to answer to the regulators? Until now, it was considered a regulatory license if users held their keys themselves. But this is not a certainty.

At the beginning of April, the SEC honored Uniswap with a Wells Fargo – even though the decentralized exchange operates completely non-fiduciary. In the trial against the decentralized mixer Tornado Cash, the prosecution accuses the developers of having operated a “money transmitter” – even though they never had trust over the users’ assets.

There is no doubt that some apparent regulatory certainties in the US are currently under attack. With Consensys, one of the largest crypto companies ever is now taking on this question.

The argument is not entirely clear. Consensys speaks of Ether, but you can hold a variety of tokens in the Metamask wallet. Nobody would claim that there aren’t securities among them. To do this, Metamask offers users the opportunity to exchange tokens for each other, for which it still does not take on escrow, but does collect fees.

It would also be conceivable that Conensys is not suing for the freedom of Ethereum and wallets – but for a business model that is ultimately not that different from trading in securities.


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