On June 28, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Consensys Software Inc. in Brooklyn, New York. The SEC alleges that Consensys, through MetaMask Staking, engaged in the unregistered offer and sale of securities and operated as an unregistered broker.
ConsenSys’s Role in Unregistered Securities Offer
According to the complaint, since January 2023, ConsenSys has been facilitating the sale of unregistered securities for liquid staking program providers Lido and Rocket Pool. These programs provide liquid staking tokens, stETH and rETH, that back the corresponding staked assets and can be freely traded by investors. To this end, the SEC considers that ConsenSys, with its involvement in such transactions, acted as an unregistered broker, a severe violation of securities regulations.
It is further alleged that, since October 2020, ConsenSys has been brokering transactions in crypto asset securities by soliciting investors, information on investments, and facilitating the execution of orders, among others.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said:
By allegedly collecting hundreds of millions of dollars in fees as an unregistered broker and engaging in the unregistered offer and sale of tens of thousands of securities, Consensys inserted itself squarely into the U.S. securities markets while depriving investors of the protections afforded by the federal securities laws.
The case has, however, created debate within the crypto community. Jorge Izquierdo, founder of Tuyo, expressed skepticism about the strength of the SEC’s complaint. He argued that providing access to staking via stETH and rETH through non-custodial smart contracts doesn’t fundamentally differ from offering a user interface for typical swaps.
Izquierdo noted that the SEC’s focus on these transactions while leaving out other ConsenSys services like MetaMask Pool and Validators, seemed misplaced. He also discussed Lido’s incentives to drive volume, which was not touched upon in the complaint. Perhaps, he wrote, that the SEC had been planning this case for a while and had simply decided to go ahead and file it now.
As the case rolls out, it reveals a running regulatory tension between supervisory bodies and an extremely fast-paced crypto industry. ConsenSys’s MetaMask, a central tool for getting around decentralized finance, finds itself at the forefront of a legal battle, setting a precedent for the future of crypto regulation.
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