Consensys, the parent company of Metamask, a popular Metamask wallet in the currency circle, officially filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) on the 26th of last week, accusing the SEC of intending to recognize Ethereum (ETH) as a security, criticizing this as a violation of Ethereum. "illegal seizure of power."
The lawsuit documents read:
Every ETH holder, including Consensys, will be worried that if he or she were to move ETH across the network, he or she would violate securities laws... which would lead to the Ethereum blockchain being discontinued in the United States, thus crippling the Internet One of the greatest innovations.
Consensys’ three major demands
Consensys has three main claims in its complaint:
ㄧ. Request the federal court to declare that ETH is not a security;
2. Any investigation into ConSenSys based on the premise that Ethereum is a security will violate the Administrative Procedure Act.
3. I hope the court can declare that MetaMask is not a broker under federal law, nor does it violate securities laws by providing mortgage services.
Why should you care about this lawsuit?
If Ethereum is deemed a security by the SEC
First of all, the biggest risk is that if Ethereum is really recognized as a security, companies that issue, trade, and provide Ethereum-related services will inevitably need to comply with more stringent securities regulations. This includes registration requirements, obligations to disclose information, and compliance supervision, which may significantly increase the operating costs of the project party or even force it to cease operations.
As for the market, many cryptocurrency exchanges are currently not qualified or licensed to trade securities. If Ethereum is recognized as a security, U.S. exchanges will inevitably need to obtain corresponding licenses or be forced to stop providing Ethereum transactions.
And it can be expected that such a decision will have a huge impact on investor confidence, and some investors may choose to withdraw due to uncertainty about regulations.
Except for Bitcoin, are all other currencies securities?
On the other hand, if Ethereum is recognized as a security, then there is a high probability that other tokens will not escape the fate of being recognized as securities by the SEC (except for a small number of PoW projects).
After all, the SEC mentioned in its 2023 lawsuit against Binance that cryptocurrencies classified as securities include but are not limited to BNB, BUSD, and a variety of popular cryptocurrencies: SOL, ADA, MATIC, FIL, ATOM, SAND, The impact of MANA, ALGO, AXS and COTI can be said to be very far-reaching.
Influence regulatory decisions in other countries
The regulatory decisions of the United States may greatly affect the legislative and regulatory attitudes of other countries towards Ethereum and other cryptocurrencies. Some countries may follow the lead of the United States, which is likely to have a huge blow to the development of the cryptocurrency industry.
Consensys officials also issued a warning on the 28th that if the SEC successfully identifies Ethereum as a security, many years of work by many companies and developers will be in vain, billions of dollars in economic value will be destroyed, and it may also lead to a massacre of American workers. Massive unemployment.
Impact on the launch of Ethereum spot ETF
In addition, many investors originally believed that after the approval of the spot Bitcoin ETF, the expectation that the approval of the spot Ethereum ETF "will come soon" is also likely to be shattered. The market's probability of approval has continued to decline in recent months. Now that the SEC has expressed this attitude, the probability of approval seems to have become even lower again.
As for whether the Ethereum spot ETF can pass the deadline on May 23 (the final approval deadline for VanEck's application), American financial lawyer Scott Johnsson poured cold water on it in late April. He said:
I expect a rejection next month, and a high chance there won't be any approvals later this year. I leave a little room for possible changes in the political situation, but right now, the likelihood of that happening is very slim.
Will it affect Metamask’s currency issuance plan?
On the other hand, Metamask officials announced as early as August 2022 at the developer community gathering that they would explore the possibility of issuing native tokens with an open attitude. Although the official previously stated that there will be no currency issuance plan in the short term , the team is still focused on the continuous optimization of the product.
But this time, after receiving a warning from the SEC, there may be another crackdown on the company’s plan to issue currency.
Consensys provides 4 reasons why Ethereum is not a security
Of course, there is no need to be too pessimistic at the moment. A Consensys spokesperson listed four major reasons, emphasizing that Ethereum should not be regarded as a security:
1. SEC’s historical stance on Ethereum
William Hinman, former director of the SEC's Division of Corporate Finance, stated in 2018 that Ethereum is not a security. The SEC has not officially retracted this position. It seems unreasonable for the SEC to suddenly change its view without substantial new evidence or changes in the environment. Unfounded and in conflict with previous regulatory guidance.
A Consensys spokesperson said:
According to Director Hinman’s point of view in 2018, there is no difference between the current situation and 2018. At this stage, in terms of theory and openness, if there is a difference, the number of people developing, researching, and adopting Ethereum is even higher than before. More.
Further reading:SEC key documents released! Hinman once talked with V God about "The Ethereum Foundation is decentralized"
2. CFTC classifies Ethereum as a commodity
The U.S. Commodity Futures Trading Commission (CFTC) has long regarded Ethereum as a commodity. The CFTC recently clearly classified Ethereum as a commodity in a civil enforcement action against the cryptocurrency exchange KuCoin. This classification has consolidated the market The understanding and regulatory treatment of Ethereum further demonstrates the distinct role and functions of Ethereum from securities.
A spokesperson for Consensys said that the SEC’s previous position and the CFTC’s consistent determination jointly support the argument that Ethereum is a commodity, not a security:
The SEC has made it clear for many years that Ethereum is a commodity, so there is no need to go into detail. Just look at the CFTC's continued stance and the SEC's past statements to get the correct result.
Extended reading: Harshly criticizing the SEC’s “black box” supervision, the chairman of the US CFTC insists that BTC and ETH are commodities
3. Decentralization and open protocols
The essence of Ethereum's architecture is decentralization. Unlike typical securities (which are managed by centralized entities and allow insiders to profit from information asymmetry), Ethereum runs on a platform where all information is publicly accessible.
A Consensys spokesperson said:
Ethereum is undoubtedly decentralized. There is no core issuer or group that controls the overall situation, and there is no development team with privileged internal information. This is a typical common business form that securities must have.
4. Not related to the change of consensus mechanism
Ethereum’s recent transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanism was cited by the SEC as a potential reason for reclassifying Ethereum. However, this transition does not affect the core nature of Ethereum, nor does it affect its Non-Securities Classification.
A Consensys spokesperson said:
Looking back at Director Hinman’s speech in 2018, he stated at that time that Ethereum is not a security. This view is not based on the PoW or PoS mechanism, and the consensus mechanism has nothing to do with whether it is a security.
The move to PoS does not introduce elements typical of securities, such as dividends or ownership rights in a central enterprise. This is simply a technological evolution that enhances efficiency and sustainability without changing the underlying decentralized nature of the platform.
summary
In general, if the U.S. Securities and Exchange Commission (SEC) still insists that Ethereum is a security, it will definitely have more impact on the cryptocurrency world. By then, all market participants - from developers to investors, from Exchanges to regulators—all must adjust trading strategies and operating models.
However, we don’t need to be too pessimistic at the moment. After all, the SEC still needs to bear the burden of proof that Ethereum is a security. This itself is a complex and challenging process. For Ethereum, its decentralized nature and its A wide range of use cases may make it difficult for the SEC to provide evidence. In short, this lawsuit deserves our continued attention, and Dongfang District will continue to track it for you.
