SEC Crypto News: SEC Sues Consensys Over MetaMask, Alleges Unregistered Securities Sales

SEC Crypto News: SEC Sues Consensys Over MetaMask, Alleges Unregistered Securities Sales

SEC Crypto News – The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ethereum software provider Consensys on Friday, alleging that its MetaMask service operated as an unregistered broker by facilitating the offer and sale of securities. The suit also targets Ethereum staking services Lido (LDO) and Rocket Pool (RPL), which are used by MetaMask to power its staking feature.

This enforcement action represents the SEC’s ongoing efforts to classify various segments of the crypto market as securities. Following the unexpected approval of an Ether ETF last month, the lawsuit has intensified suspicions that the SEC may attempt to regulate liquid staking derivatives of ETH, such as Lido’s stETH token. The agency has previously secured settlements related to staking services, including with Kraken, and Coinbase has ceased its staking services in certain states following agreements with state securities regulators.

MetaMask is the most widely used wallet for Ethereum and numerous other blockchains. In addition to enabling users to store cryptocurrency purchased on other platforms, MetaMask allows users to buy and sell digital assets directly within the app through its “Swaps” service. This feature is one of the main points of contention in the SEC’s lawsuit, filed in the U.S. District Court for the Eastern District of New York.

According to the SEC’s suit, Consensys collects a fee for providing the Swaps service and has facilitated over 36 million crypto transactions in the past four years. The SEC claims that “at least 5 million” of these transactions involved “crypto asset securities.”

The SEC identified several cryptocurrencies as securities, including Polygon (MATIC), Mana (MANA), Chiliz (CHZ), the Sandbox (SAND), and Luna (LUNA), but suggested that other digital assets might also be classified as securities. Many of these cryptocurrencies have been previously identified as unregistered securities in other SEC actions, although some issuing entities have contested this characterization.

The SEC also examined MetaMask’s “staking” feature, which allows users to deposit assets to secure the Ethereum blockchain in exchange for interest. This feature is powered by Lido and Rocket Pool, two leading names in decentralized finance. MetaMask users can deposit assets into these third-party staking services and receive a tradable receipt, known as a liquid staking token, in return.

The SEC argued that MetaMask’s integration with Lido and Rocket Pool constitutes “investment contracts,” indicating that the agency views their popular stETH and rETH liquid staking tokens as unregistered securities.

“Since at least January 2023, Consensys has offered and sold tens of thousands of unregistered securities on behalf of liquid staking program providers Lido and Rocket Pool, who create and issue liquid staking tokens (called stETH and rETH) in exchange for staked assets,” the SEC stated. “While staked tokens are generally locked up and cannot be traded or used while they are staked, liquid staking tokens, as the name implies, can be bought and sold freely.”

A representative for Consensys told CoinDesk on Friday that the company had anticipated the SEC’s claim that the MetaMask software interface must register as a securities broker.

“The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement actions,” the representative said. “This is just the latest example of its regulatory overreach – a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit.”

The lawsuit follows Consensys’ recent announcement that the SEC had concluded its investigations into the company concerning Ethereum, as indicated by two letters the SEC sent on June 18. However, these letters warned that the SEC might still pursue enforcement actions related to other matters, though neither mentioned MetaMask.

Consensys, led by Ethereum co-founder Joe Lubin, previously sued the SEC in April seeking judicial relief against the potential designation of MetaMask as a broker or the assertion that its staking service violated federal securities laws. This lawsuit, filed in Texas, also sought a court order declaring that ether (ETH) is not a security and to terminate the SEC’s investigation into Consensys.

“We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask,” the Consensys representative said. “We will continue to vigorously pursue our case in Texas for a ruling on these issues because it matters not only to our company but the future success of web3.”