Joe Lubin is in a dispute with the Securities and Exchange Commission. He claims that the financial regulator is not only waging war on Ethereum, but also seeking jurisdiction over the future of the internet. So Lubin decided to fight back.
In 2015, Lubin was part of the team that founded Ethereum, the computer network that is home to the world’s second-largest cryptocurrency, known as ETH. Later that year, Lubin founded Consensys with the loose goal of supporting the development and adoption of Ethereum and developing software products based on the network. In April, Consensys received an unsolicited letter from the SEC – a so-called Wells Notice – informing the company that a lawsuit against the company was imminent. Consensys was told that the regulator’s complaint had to do with one of the software products in its inventory: MetaMask, a crypto wallet that allows users to store crypto coins and interact with Ethereum-based apps.
Consensys claims the SEC announcement, which was not made public, said MetaMask made the company an unregistered securities broker. Specifically, the SEC is questioning 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 staking.
On April 25, Consensys filed its own lawsuit against the SEC. The complaint accuses the regulator of an “unlawful assumption of authority over ETH,” which “does not exhibit any of the characteristics of a security” — the specific type of financial instrument over which the SEC rules. The lawsuit claims that the SEC “would spell disaster for the Ethereum network” if it enforced its will.
According to Consensys, the SEC did not refer to ETH itself as a security in its Wells announcement and instead focused on MetaMask features. But according to Consensys, the agency has long been quietly conducting an investigation into Ethereum and believes ETH should be reclassified as such.
That’s not fair, Consensys claims, because an SEC director has previously described ETH as a commodity rather than a security, and the Commodity Futures Trading Commission, a separate U.S. financial regulator, has made the same claim. “Consensys has built its business against the backdrop of this regulatory consensus,” the lawsuit says.
By filing the lawsuit, Consensys hopes to evade itself and Ethereum from the SEC by clarifying the limits of its jurisdiction and encouraging the rest of the crypto industry to retaliate against what it describes as the SEC’s “aggressive and unlawful overreach.” An SEC spokesman declined to comment on Consensys’ specific allegations, saying only that “failure to comply with securities laws deprives investors of important protections, including frameworks that prevent fraud and manipulation, proper disclosures, segregation of customer assets, and Safeguards against conflicts of interest.”, oversight by a self-regulatory organization and routine inspection by the SEC. It is investors who will suffer and American financial markets that could suffer.”
The following questions and answers have been edited for brevity and clarity.