Joe Lubin is in a fight with the Securities and Exchange Commission. Not only is the financial regulator waging war against Ethereum, he claims, but making a grab for jurisdiction over the future of the Internet. So Lubin has decided to punch back.
In 2015, Lubin was part of the team that created Ethereum, the computer network home to the world’s second largest cryptocurrency, known as ETH. Later that year, Lubin founded Consensys, with the loose ambition to support the development and adoption of Ethereum and built software products on top of the network. In April, Consensys received an unwelcome missive—known as a Wells Notice—from the SEC, informing the company that it was about to be sued. The regulator’s grievance, Consensys was told, had to do with one of the software products in its stable: MetaMask, a crypto wallet that lets users store crypto coins and interact with Ethereum-based apps.
Consensys claims that the SEC notice, which has not been made public, states that MetaMask has made the company into an unregistered securities broker. Specifically, the SEC takes issue with two MetaMask features: one that allows users to trade between different tokens and another that lets them lock up their tokens in exchange for a regular reward, in a process called staking.
On April 25, Consensys filed a lawsuit of its own against the SEC. The complaint accuses the regulator of an “unlawful seizure of authority over ETH,” which “bears none of the attributes of a security”—the specific type of financial instrument over which the SEC has dominion. The SEC having its way “would spell disaster for the Ethereum network,” the complaint alleges.
In its Wells Notice, the SEC stopped short of calling ETH itself a security, says Consensys, focusing instead on the MetaMask features. But according to Consensys, the agency has long been quietly conducting an investigation into Ethereum, in the view that ETH should be reclassified as such.
That’s not fair, claims Consensys, because an SEC director has previously described ETH as a commodity, not a security, and the Commodity Futures Trading Commission, a separate US financial regulator, has made the same contention. “Consensys built its business against the backdrop of this regulatory consensus,” the lawsuit says.
In bringing the lawsuit, Consensys hopes to drag itself and Ethereum out from underneath the SEC, by clarifying the limits of its jurisdiction, and embolden the rest of the crypto industry to retaliate against what it describes as “aggressive and unlawful SEC overreach.” An SEC spokesperson declined to comment on the specific allegations made by Consensys, saying only that “noncompliance with the securities laws deprives investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosures, segregation of customer assets, safeguards against conflicts of interest, oversight by a self-regulatory organization, and routine inspection by the SEC. It’s investors who get hurt and the American financial markets that may suffer.”
The following Q&A has been edited for brevity and clarity.
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