Ethereum
SEC sues Consensys over MetaMask staking and broker allegations
The U.S. Securities and Exchange Commission (SEC) filed a lawsuit Friday against Ethereum software provider Consensys over its MetaMask service, alleging that the wallet tool was an unregistered broker-dealer that “engaged in the offer and sale of securities.” The SEC’s complaint also targeted Ethereum staking services Lido (LDO) and Rocket Pool (RPL), the third-party platforms that MetaMask uses to power its staking feature.
This enforcement action represents the SEC’s latest attempt to classify a large portion of the cryptocurrency market as securities. After last month’s surprise approval of the Ether ETF, the suit also confirmed lingering suspicions that the SEC may still attempt to place liquid ETH staking derivatives, like Lido’s stETH token, under its regulatory jurisdiction. The agency has already imposed regulations related to staking services, including with Kraken, while Coinbase ended its staking services in some states after reaching an agreement with state securities regulators.
MetaMask is the most used wallet for Ethereum and many other blockchains. In addition to offering users the ability to store cryptocurrencies purchased on other platforms, MetaMask allows users to buy and sell digital assets directly within the app via its “Swaps” service – one of the main features at issue in the SEC lawsuit, which it filed Friday in US court in the Eastern District of New York.
Consensys charges fees for providing this service and, according to the SEC complaint, has facilitated more than 36 million crypto transactions over the past four years. The SEC said “at least 5 million” of those transactions involved “crypto asset securities.”
The SEC said those securities include Polygon (MATIC), Mana (MANA), Chiliz (CHZ), Sandbox (SAND) and Luna (LUNA), though it suggested other digital assets could also be securities. Many of the cryptocurrencies named in Friday’s complaint have been cited in previous SEC lawsuits as unregistered securities, though at least some of the issuing entities have disputed that characterization.
The SEC also examined MetaMask’s “staking” feature, which allows users to stake assets to secure the Ethereum blockchain in exchange for interest. This feature is powered by Lido and Rocket Pool, two of the biggest names in decentralized finance. MetaMask users can make deposits into these third-party staking services and earn a tradable receipt on their deposit, called a liquid staking tokenin exchange.
The SEC said MetaMask’s Lido and Rocket Pool integrations amount to “investment contracts,” suggesting the agency considers their popular stETH and rETH liquid staking tokens to be 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, which create and issue liquid staking tokens (known as stETH and rETH) in exchange for staked assets,” the SEC said. “While staked tokens are typically locked and cannot be traded or used while staked, liquid staking tokens, as the name suggests, can be bought and sold freely. »
A representative for Consensys told CoinDesk on Friday that the company “fully expects the SEC to follow through on its threat to require our MetaMask software interface to register as a securities broker.”
“The SEC has been pursuing an anti-cryptocurrency policy, driven 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 norms and expand the SEC’s jurisdiction through lawsuits.”
Friday’s trial comes just weeks after Consensys announced the regulator had ended investigations into the Ethereum-linked company, citing two letters the SEC had sent it.
These June 18 letters warn that the SEC may still pursue enforcement actions related to other issues. Neither letter mentions MetaMask.
Consensys, led by Ethereum co-founder Joe Lubin, already sued In April, the SEC sought legal relief against the SEC for allegedly calling MetaMask a broker-dealer or stating that its staking service violated federal securities laws. This lawsuit, filed in Texas, also sought to obtain a court order declaring ether (ETH) not a security and to end the SEC’s investigation into Consensys.
“We believe the SEC has not been given authority to regulate software interfaces such as MetaMask,” the Consensys representative said. “We will continue to vigorously pursue our case in Texas for a decision on these issues because it matters not only to our business, but also to the future success of web3. »
UPDATE (June 28, 2024, 5:10 p.m. UTC): Add extra details everywhere.
UPDATE (June 28, 5:27 p.m. UTC): Adds SEC press release.
UPDATE (June 28, 2024, 6:04 p.m. UTC): Adds additional details throughout.
UPDATE (June 28, 2024, 6:11 p.m. UTC): Adds a Consensys statement.