Ethereum
SEC Sues Consensys Over MetaMask Staking, Broker Allegations
The US Securities and Exchange Commission (SEC) on Friday filed a lawsuit against Ethereum software provider Consensys over its MetaMask service, alleging that the wallet tool was an unregistered broker that “engaged in the offering and selling of of titles”. The SEC’s complaint also targeted Ethereum staking services Lido (LDO) and Rocket Pool (RPL), the third-party platforms that MetaMask uses to power its staking feature.
The enforcement action represents the SEC’s latest attempt to categorize a large portion of the crypto market as securities. Following last month’s surprise approval of the Ether ETF, the lawsuit also confirmed lingering suspicions that the SEC may still attempt to bring liquid ETH staking derivatives, such as Lido’s stETH token, under its regulatory purview. The agency has previously forced settlements related to staking services, including with Kraken, while Coinbase shut down its staking services in some states after reaching settlements with state securities regulators.
MetaMask is the most widely used wallet for Ethereum and a host of other blockchains. In addition to offering users the ability to store cryptocurrencies purchased on other platforms, MetaMask allows users to buy and sell digital assets directly within the app via its “Swaps” service — one of the key features at issue in the SEC’s lawsuit, which it itself filed. filed Friday at the U.S. courthouse in the Eastern District of New York.
Consensys charges fees for providing this service and, according to the SEC complaint, has facilitated more than 36 million crypto transactions over the past four years. The SEC said “at least 5 million” of these transactions involved “crypto asset securities.”
The SEC said those securities include Polygon (MATIC), Mana (MANA), Chiliz (CHZ), Sandbox (SAND) and Luna (LUNA), though it suggested other digital assets could also be securities. Many of the cryptocurrencies cited in Friday’s lawsuit have been designated in previous SEC lawsuits as unregistered securities, though at least some of the issuing entities have disputed that characterization.
The SEC also reviewed MetaMask’s “staking” feature, which allows users to deposit assets to secure the Ethereum blockchain in exchange for interest. The feature is powered by Lido and Rocket Pool, two of the biggest names in decentralized finance. MetaMask users can deposit to these third-party staking services and earn a negotiable receipt on their deposit, called a liquid staking tokenin exchange.
The SEC said MetaMask’s Lido and Rocket Pool integrations amounted to “investment contracts,” suggesting the agency considers their popular stETH and rETH liquid staking tokens to be unregistered securities.
“Since at least January 2023, Consensys has offered and sold tens of thousands of unregistered securities on behalf of liquid staking program providers Lido and Rocket Pool, which create and issue liquid staking tokens (referred to as stETH and rETH) in exchange for staked assets,” the SEC said. “While staked tokens are typically locked and cannot be traded or used while they are staked, liquid staking tokens, as their name implies, can be bought and sold freely.”
A representative for Consensys told CoinDesk on Friday that the company “fully expects the SEC to follow through on its threat to require our MetaMask software interface to register as a securities broker.”
“The SEC has been pursuing an anti-cryptocurrency policy, driven by ad hoc enforcement actions,” the representative said. “This is just the latest example of its regulatory overreach—a transparent attempt to redefine well-established legal norms and expand the SEC’s jurisdiction through lawsuits.”
Friday’s trial comes just weeks after Consensys announced the regulator had ended investigations into the Ethereum-linked company, citing two letters the SEC had sent it.
Those June 18 letters warned that the SEC could still take enforcement action related to other matters. Neither letter mentioned MetaMask.
Consensys, led by Ethereum co-founder Joe Lubin, already pursued In April, the SEC filed a lawsuit against the SEC for allegedly labeling MetaMask a broker-dealer or saying its staking service violated federal securities laws. That lawsuit, filed in Texas, also sought a court order declaring ether (ETH) not a security and ending the SEC’s investigation into Consensys.
“We believe the SEC has no authority to regulate software interfaces like MetaMask,” Consensys’ representative said. “We will continue to vigorously litigate our case in Texas to obtain a ruling on these issues, as it matters not only to our business, but also to the future success of web3.”
UPDATE (June 28, 2024, 5:10 p.m. UTC): Add extra details everywhere.
UPDATE (June 28, 5:27 p.m. UTC): Adds SEC press release.
UPDATE (June 28, 2024, 6:04 p.m. UTC): Add extra details everywhere.
UPDATE (June 28, 2024, 6:11 p.m. UTC): Adds a Consensys statement.