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Ethereum Co-Founder Says SEC Is “Educating Everyone” About Cryptocurrencies
Joe Lubin is in a fight with the Securities and Exchange Commission. Not only is the financial regulator waging a war against Ethereum, he argues, but it is also seizing jurisdiction over the future of the Internet. So Lubin decided to fight back.
In 2015, Lubin was part of the team that created Ethereum, the computer network that hosts the world’s second-largest cryptocurrency, known as ETH. That same year, Lubin founded Consensys, with the vague ambition of supporting the development and adoption of Ethereum and building software products on the network. In April, Consensys received an unsolicited letter, known as a Wells Notice, from the SEC, informing the company that it was about to be sued. The regulator’s complaint, Consensys was told, had to do with one of the software products in its stable: MetaMaska crypto wallet that allows users to store crypto coins and interact with Ethereum-based apps.
Consensys claims the SEC notice, which has not been made public, alleges that MetaMask has turned the company into an unregistered securities broker-dealer. Specifically, the SEC takes issue with two features of MetaMask: one that allows users to trade between different tokens, and another that allows them to lock up their tokens in exchange for a regular reward, in a process called episode.
On April 25, Consensys filed a own cause against the SEC. The complaint accuses the regulator of “illegally seizing authority over ETH,” which “has none of the attributes of a security,” the specific type of financial instrument over which the SEC has dominion. If the SEC prevails “it would spell disaster for the Ethereum network,” the complaint claims.
In its Wells Notice, the SEC avoided calling ETH itself a security, Consensys says, instead focusing on MetaMask’s features. But according to Consensys, the agency has been conducting a silent investigation into Ethereum for some time, in the belief that ETH should be reclassified as such.
That’s not right, Consensys argues, because an SEC director did it previously described ETH as a commoditynot a security, and the Commodity Futures Trading Commission, a separate U.S. financial regulator, did he made the same thesis. “Consensys has built its business against the backdrop of this regulatory consensus,” the lawsuit states.
In filing the lawsuit, Consensys hopes to drag itself and Ethereum out of the SEC’s control, clarifying the limits of its jurisdiction and encouraging the rest of the cryptocurrency industry to fight back against what it describes as “aggressive and illegal SEC overreach.” An SEC spokesperson declined to comment on the specific allegations made by Consensys, saying only that “failure to comply with securities laws deprives investors of critical protections, including regulations that prevent fraud and manipulation, proper disclosure, segregation of client assets, safeguards against conflicts of interest, oversight by a self-regulatory body, and routine inspection by the SEC. It’s the investors who get hurt and the American financial markets who suffer.”
The following questions and answers have been edited for brevity and clarity.