Breaking: Consensys Fights for Ethereum, Sues SEC to Block Regulation

Consensys sues SEC to defend Ethereum's status, challenging its potential security classification amid regulatory disputes.
By Maxwell Mutuma
Updated September 18, 2024
SEC Investigates Ethereum's Security Designation With Crypto Exchanges

Highlights

  • Consensys sues SEC to prevent Ethereum from being labeled as a security.
  • The lawsuit cites a lack of fair notice and unconstitutional due process.
  • The case highlights ongoing regulatory disputes in the cryptocurrency sector.

Ethereum developer Consensys has initiated a lawsuit against the U.S. Securities and Exchange Commission (SEC) in the District Court for the Northern District of Texas. The company aims to prevent the regulator from classifying ETH as a security.

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Consensys Sues SEC Over Ethereum Classification

Consensys contests the SEC’s recent actions, which suggest Ethereum might be treated as a security. The company received a Wells notice on April 10, signaling the SEC’s intention to enforce securities laws against Consensys for its MetaMask wallet product. Consensys refutes the claim that it operates as a broker, emphasizing that MetaMask merely serves as an interface and does not manage customer assets or transactions. The firm argues that this classification could undermine the longstanding understanding of Ethereum as a commodity, not a security.

The lawsuit also references a 2018 speech by former SEC Director Bill Hinman, which indicated that Ethereum was seen as a commodity. Moreover, the Commodities Futures Trading Commission (CFTC), which oversees derivative products linked to Ethereum, has also recognized cryptocurrency as a commodity, adding to the regulatory confusion.

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Constitutional Concerns and Major Questions Doctrine

Consensys accuses the SEC of a major reversal that differs from its previous stance and that the SEC failed to provide fair notice ahead of the move, which makes the due process rights unconstitutional. The action asserts that the SEC’s backtracking might lead to the end of both the Ethereum network and Consensys.

The lawsuit furthermore relies on the “major questions doctrine,” the idea brought up by the majority of Supreme Court rulings that limit the regulatory authority of federal agencies beyond their original mandates given by Congress. Consensys refers to the cases where Terraform Labs, as well as Coinbase, had their joint applications dismissed primarily because of the unavailability of the “abstention doctrine” on crypto-related questions. The company asks the court to make a judicial ruling that ensures that Meta Mask’s staking functions and swap features do not violate securities law and prohibits the continuation of SEC investigations or enforcement actions against these functions.

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Crypto Sector Defends Against SEC’s Tightening Grip

However, Consensys’s litigation is one of the few stumbling blocks that the crypto sector has had with the SEC. The SEC has also filed lawsuits against other leading exchanges, such as Binance.US and Kraken. It should be noted that Uniswap Labs also revealed that it had been served with a Wells notice from the SEC.

Consensys’s corresponding action, combined with others taken by the Blockchain Association and firms like Legit Exchange, is labeled a class action lawsuit. These companies are struggling for the same cause, which is controlling the scope of authority that the SEC has over particular crypto assets and companies. They justify their intent as a measure of defense against regulatory overreach that can strangle the crypto market, which is quite new and fast-growing.

Read Also: Bitcoin Trust (GBTC) Sets Unprecedented Outflow Record: What’s Next?

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Maxwell Mutuma
Maxwell is a crypto-economic analyst and Blockchain enthusiast, passionate about helping people understand the potential of decentralized technology. I write extensively on topics such as blockchain, cryptocurrency, tokens, and more for many publications. My goal is to spread knowledge about this revolutionary technology and its implications for economic freedom and social good.
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