Ethereum software giant Consensys filed suit against the Securities and Exchange Commission (SEC) on Thursday, alleging that the regulator is trying to "seize control over the future of cryptocurrency"—and that the agency plans to designate Ethereum as a security.
Consensys, the Ethereum startup behind the popular MetaMask wallet and Infura infrastructure platform, alleges that the SEC is overreaching in its apparent attempts to regulate Ethereum under current chair Gary Gensler. An agency official had previously said in 2018 that ETH should not be treated as a security.
"The U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) seeks to regulate ETH as a security, even though ETH bears none of the attributes of a security—and even though the SEC has previously told the world that ETH is not a security, and not within the SEC’s statutory jurisdiction," the 34-page complaint reads.
The complaint further notes that the SEC served Consensys with a Wells Notice over MetaMask. A Wells Notice is a letter that is sent ahead of planned regulatory action. As a result, Consensys opted to file a preemptive suit against the agency, seeking a declaration that Ethereum is indeed not a security.
Ethereum is the blockchain that powers ETH, the second-largest cryptocurrency by market cap. Its network is used by developers to build decentralized applications.
"The SEC seeks to achieve this regulatory dominion through ad hoc enforcement actions against Consensys and others—enforcement actions that would punish Consensys for accepting and acting in reliance on years of government assurance that ETH is not a security," the lawsuit reads.
The SEC's position on Ethereum as a security is important, as the regulator has gone after many crypto companies it deems are breaking laws for selling unregistered securities.
If the SEC does decide to designate Ethereum as a security instead of a commodity, then a number of crypto companies will have allegedly been breaking American securities laws. Other regulators such as the Commodity Futures Trading Commission (CFTC) have said that Ethereum is a commodity.
"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," said Ethereum co-founder and Consensys founder and CEO Joe Lubin, in a press release.
"The SEC cannot be allowed to arbitrarily expand its jurisdiction to regulate what is plainly and by the SEC's own prior admission a commodity," Lubin continued. "We are hopeful that the case brings attention to—and ultimately halts—the SEC's reckless approach and restores the kind of regulatory certainty and sanity that is so essential to Web3 technologies and a well-functioning innovation economy."
Consensys declined to provide additional comment to Decrypt; the SEC did not immediately respond.
The lawsuit comes soon after the Ethereum Foundation, which supports the decentralized blockchain network, disclosed in February that it had received an inquiry from a undisclosed "state authority." Fortune reported in March that it was indeed the SEC behind the request.
Earlier this month, the leading Ethereum decentralized exchange, Uniswap, announced that it too had received a Wells Notice ahead of an expected enforcement action by the SEC.
(Disclosure: Consensys is one of 22 investors in Decrypt)
Edited by Andrew Hayward