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Consensys Files Lawsuit Against SEC Over Ethereum Regulation
Consensys has taken legal action against the US Securities and Exchange Commission (SEC) in response to what it deems as an overreach in the regulation of Ethereum (ETH). The lawsuit, filed on April 25, alleges that the SEC’s attempts to regulate Ethereum through enforcement actions against various companies, including Consensys, are aggressive and unlawful.
The central argument made by Consensys is that the SEC lacks the legal authority to regulate ETH, user-controlled software interfaces, or the broader Ethereum blockchain. The company aims to prove that Ethereum is not a security and that operating platforms like MetaMask does not constitute acting as a broker or selling securities.
Consensys is seeking an injunction to prevent the continuation of SEC investigations into MetaMask and related ETH sales. The SEC had issued a Wells notice and conducted a phone conference with Consensys on April 10, highlighting concerns about MetaMask’s staking and swap features.
Three-Prong Argument
The lawsuit presented by Consensys is structured around three key points. First, the company argues that the SEC’s jurisdiction is limited to securities and that it has previously acknowledged ETH as not falling within that category. Secondly, Consensys contests the SEC’s classification of non-financial platforms as financial applications, emphasizing the utility of ETH beyond its role as a commodity. Finally, it asserts that applications like MetaMask do not function as securities brokers but rather facilitate the exchange of ETH among users.
The case has been filed in the US District Court for the Northern District of Texas, with the SEC and its chair, Gary Gensler, named as defendants. This legal battle has broader implications beyond Consensys and the SEC, potentially affecting the compliance efforts of any entity involved with ETH.
Recent reports have highlighted the SEC’s scrutiny of crypto companies affiliated with the Ethereum Foundation, including Uniswap, which received a Wells notice on April 10. The treatment of Ethereum as a security by the SEC could impact the approval of spot Ethereum ETFs, similar to the decision made regarding Bitcoin earlier this year.
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