The U.S. SEC sued Consensys, targeting MetaMask and Ethereum staking services: Lido and Rocket Pool were all involved

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ethereum software provider Consensys, accusing its MetaMask wallet service of acting as an unregistered broker in facilitating the offer and sale of securities. The legal action also involves the Ethereum staking services Lido (LDO) and Rocket Pool (RPL) used by MetaMask.

Does MetaMask Metamask Wallet also involve securities?

MetaMask is widely recognized as the most commonly used wallet for Ethereum and other blockchains. In addition to storing cryptocurrencies, MetaMask also allows users to directly buy and sell digital assets through its "Swap" service. The SEC's lawsuit, filed in the U.S. District Court for the Eastern District of New York, claims that this feature is at the heart of the alleged breach.

Wallet trading functionality involves securities, making Consensys profitable

According to the SEC, Consensys has facilitated more than 36 million crypto transactions through MetaMask in the past four years, of which "at least 5 million" involved crypto-asset securities. The wallet’s “Swap” service generates revenue for Consensys, which the SEC believes constitutes brokerage activity without proper registration.

SEC’s Position on Crypto-Asset Securities

The SEC’s lawsuit lists several cryptocurrencies, including Polygon (MATIC), Mana (MANA), Chiliz (CHZ), The Sandbox (SAND), and Luna (LUNA), as unregistered securities. This determination has been disputed by multiple issuing entities in previous SEC cases. The lawsuit suggests that other digital assets may also be classified as securities.

SEC launches review of staking function: pledged tokens are investment contracts

MetaMask's staking feature is powered by Lido and Rocket Pool and is currently the largest staking service protocol, allowing users to deposit assets to secure the Ethereum blockchain and earn rewards. Users receive liquid staking tokens such as stETH and rETH, which can be freely traded. The SEC considers these tokens to be investment contracts and therefore unregistered securities.

Consensys response: Not surprising

A Consensys representative expressed disappointment but not surprise at the SEC’s action, accusing the agency of regulatory overreach and an anti-crypto agenda. The representative emphasized that MetaMask should not be classified as a securities broker.

(Coinbase sues SEC and FDIC: Failure to cooperate in providing documents in accordance with the law and trying to squeeze out the encryption industry)

Consensys sued the SEC in April, seeking judicial relief to oppose the SEC's possible claims regarding MetaMask's brokerage status and its staking services. The lawsuit also seeks to declare ether (ETH) a non-security and halt the SEC's investigation into Consensys.

(SEC has given up on pursuing ETH and will still sue MetaMask for its pledge and trading functions)