A crypto advocacy group that’s targeted industry skeptics on Capitol Hill is sounding off against Prometheum, accusing the much-contested crypto firm of carrying water for the U.S. Securities and Exchange Commission (SEC) with its emergent Ethereum business.
Prometheum launched custody services for Ethereum on Friday, offering to safeguard the asset on customers’ behalf after months of anticipation, per Fortune. The catch: Prometheum's service classifies Ethereum as a security under the SEC’s remit.
The SEC has not yet made this declaration, though the agency has been accused of internally operating on that premise amid its ever-expanding crypto industry crackdown. Last month, Ethereum software giant Consensys filed suit against the SEC on just that point, seeking confirmation from a court that Ethereum is in fact not a security (disclosure: Consensys is one of 22 investors in Decrypt).
“This announcement is simply the latest attempt orchestrated by the SEC to drive the crypto market out of the United States,” the Cedar Innovation Foundation said of the Prometheum offering in a statement. “The SEC and Prometheum stand alone in their claim that ETH is a security.”
While U.S. financial regulators like the Commodity Futures Trading Commission (CFTC) have asserted that Ethereum is a commodity, Prometheum’s business could disrupt that notion. As the SEC has accused crypto exchanges of flouting securities laws, Prometheum has also sought out novel licenses to offer digital asset trading.
Arguing its business has satisfied regulatory requirements where others have not, Prometheum has drawn widespread ire in an industry that advocates say is maligned with uncertainty. While the firm has reportedly not launched the trading of Ethereum as a security, offering customers custody services is being billed as an prerequisite step.
The Cedar Innovation Foundation claimed Prometheum’s business is part of a “desperate attempt to misclassify ETH as a security,” an alleged scheme that it believes will be stifled through litigation. Calling out SEC Chair Gary Gensler, the organization said, “It’s time for Congress to put an end to Gensler’s political machinations.”
However, the ruckus around Prometheum was largely overshadowed Monday by speculation that the SEC could soon approve spot Ethereum ETFs—a stunning about-face compared to growing skepticism around such prospects in recent weeks. Positing that a change in the SEC's posture was motivated by political pressure, Bloomberg ETF analysts Eric Balchunas and James Seyffart raised their approval odds to 75% from 25%.
The proposed ETFs classify Ethereum as a commodity—not a digital asset security as Prometheum's business does.
Prometheum burst onto the crypto scene last summer after its co-CEO Aaron Kaplan testified before Congress about the SEC’s regulatory approach to crypto. Saying the SEC had clearly laid out a path to compliance for firms, Kaplan’s comments proved controversial as the little-known firm touted its unique membership with the Financial Industry Regulatory Authority (FINRA).
Taking years to realize its vision as a so-called market ecosystem for digital asset securities, lawmakers questioned how Prometheum could become a poster boy for SEC compliance without offering any products or services. Since then, Prometheum has worked steadily towards achieving that goal, much to the crypto industry’s chagrin.
Prometheum did not immediately respond to a request for comment from Decrypt.
While the Cedar Innovation Foundation notes on its website that crypto education is core to its mission, the organization has also been linked to spending on political advertisements against lawmakers like Sherrod Brown (D-OH), who has publicly warned against crypto’s risks before.
Edited by Andrew Hayward