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Consensys Challenges SEC’s Attempt to Designate Ethereum as Security
Ethereum software behemoth Consensys recently took legal action against the Securities and Exchange Commission (SEC), alleging that the regulatory body is endeavoring to assert control over the future of cryptocurrency. Consensys, the company behind the renowned MetaMask wallet and Infura infrastructure platform, asserted that the SEC is exceeding its authority in its purported bid to regulate Ethereum under the guidance of current chair Gary Gensler. Notably, an SEC official had previously stated in 2018 that Ethereum should not be classified as a security.
In a 34-page complaint filed with the court, Consensys contended that the SEC is pushing to categorize Ethereum as a security, despite the cryptocurrency lacking the characteristics of a security. The complaint also highlighted that the SEC issued Consensys a Wells Notice concerning MetaMask, a prelude to regulatory action. In response, Consensys initiated a preemptive lawsuit against the SEC, seeking affirmation that Ethereum does not fall under the category of a security.
Ethereum serves as the underlying blockchain for ETH, the second-largest cryptocurrency by market capitalization. It is utilized by developers for constructing decentralized applications. Should the SEC determine Ethereum as a security instead of a commodity, numerous crypto companies could potentially face allegations of violating U.S. securities laws. Alternatively, the Commodity Futures Trading Commission (CFTC) considers Ethereum a commodity.
Ethereum co-founder, Consensys founder, and CEO Joe Lubin emphasized the significance of the legal action, stating, “The case we have filed today is intended to preserve access for the thousands of developers, market participants, and institutions who have a stake in the world’s second-largest blockchain.” Lubin further underscored the importance of preventing the SEC from unilaterally expanding its regulatory scope to govern what is explicitly recognized as a commodity.
Following the lawsuit, Consensys refrained from providing additional comments, while the SEC did not immediately respond to inquiries. This legal dispute transpired subsequent to the Ethereum Foundation’s admission in February that it was approached by an undisclosed “state authority.” In March, Fortune disclosed that the SEC was the entity behind the inquiry. More recently, decentralized exchange Uniswap announced having received a Wells Notice from the SEC, signaling an anticipated enforcement measure.
Conclusion
The legal battle between Consensys and the SEC represents a pivotal confrontation that could significantly impact the regulatory landscape surrounding Ethereum and the broader cryptocurrency industry. By challenging the SEC’s attempt to designate Ethereum as a security, Consensys seeks to safeguard the developmental ecosystem and regulatory certainty essential for the advancement of innovative Web3 technologies.
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