Joe Lubin is in a battle with the Securities and Exchange Commission. The financial regulator is not only waging war against Ethereum, he claims, but is also seizing jurisdiction over the future of the internet. So Lubin has decided to strike back.
In 2015, Lubin was part of the team that created Ethereum, the computer network containing the world's second largest cryptocurrency, known as ETH. Later that year, Lubin founded Consensys, with the loose ambition of supporting Ethereum development and adoption and building software products on top of the network. In April, Consensys received an unsolicited notice – known as a Wells Notice – from the SEC, informing the company that it was about to be sued. The regulator's complaint, Consensys was told, had to do with one of the software products in the stable: Metamaska crypto wallet that allows users to 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 an unregistered stock broker. Specifically, the SEC is taking issue with two MetaMask features: one that allows users to trade between different tokens and another that allows them to lock their tokens in exchange for a regular reward, in a process called to expand.
Consensys submitted an application on April 25 own lawsuit against the SEC. The complaint accuses the regulator of an “unlawful seizure of power over ETH,” which “bears none of the hallmarks of a security” – the specific type of financial instrument over which the SEC has control. If the SEC gets its way “it would spell disaster for the Ethereum network,” the complaint alleges.
In its Wells Notice, the SEC stopped calling ETH itself a security, Consensys says, focusing instead on its MetaMask features. But according to Consensys, the agency has been quietly conducting an investigation into Ethereum for some time, believing that ETH should be reclassified as such.
That's not fair, Consensys claims, because an SEC director did so previously described ETH as a commodityno effect, and the Commodity Futures Trading Commission, a separate US financial regulator, did made the same claim. “Consensys has built its business against the backdrop of this regulatory consensus,” the lawsuit said.
By filing the lawsuit, Consensys hopes to drag itself and Ethereum out from under the SEC by clarifying the boundaries of its jurisdiction and encouraging the rest of the crypto industry to retaliate against what it describes as “aggressive and unlawful SEC Overrun'. An SEC spokesperson declined to comment on Consensys' specific allegations, saying only that “failure to comply with securities laws deprives investors of critical protections, including rules that prevent fraud and manipulation, proper disclosures, segregation of customer assets, protection against conflicts of interest”. , supervision by a self-regulatory organization and routine inspection by the SEC. It is the investors who are hurt and the US financial markets that could suffer.”
The following questions and answers have been edited for brevity and clarity.