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The Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, targeting its MetaMask swaps and staking services. The complaint also claims that the staking programs offered by Lido and Rocket Pool are considered securities.
SEC Sues Consensys
The U.S. Securities and Exchange Commission (SEC) has initiated legal action against Consensys, asserting that the company failed to register as a broker for its MetaMask swaps service. Filed on Friday in the U.S. District Court for the Eastern District of New York, the complaint further alleges that Consensys violated securities laws through its MetaMask staking service.
According to the SEC, Consensys conducted the unregistered offering and sale of securities via its crypto asset staking programs and operated as an unregistered broker, earning over $250 million in fees. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, remarked that Consensys placed itself "squarely into the securities markets" by allegedly collecting significant fees and selling unregistered securities, thus bypassing the protections afforded to investors by federal securities laws.
"This enforcement action demonstrates our commitment to holding noncompliant entities accountable, just as we do across the broader securities market," Grewal stated. This case highlights the SEC's continued efforts to regulate the fast-evolving crypto sector and ensure adherence to financial regulations.
Lido and Rocket Pool Accused As Unregistered Securities
The SEC has accused Consensys of selling unregistered securities via staking services offered by Lido and Rocket Pool. These services issued liquid staking tokens, stETH and rETH, in exchange for staked assets.
According to the SEC, investors deposit ETH with Lido and Rocket Pool, which then aggregate and stake these assets on the blockchain, providing returns that individual investors might not achieve independently. "Upon receiving an investor’s ETH, Lido and Rocket Pool issue new crypto assets—stETH or rETH, respectively—representing the investor’s share in the staking pool and its rewards," the SEC explained. The agency asserts that these tokens are sold and offered as investment contracts, classifying them as securities.
Furthermore, the SEC alleges that Consensys facilitated transactions in various crypto asset securities, including MATIC, MANA, CHZ, SAND, and LUNA. These tokens have previously been designated as securities in other enforcement actions. "From their initial offering or sale, each of these crypto asset securities was offered and sold on Consensys’s platform as an investment contract, and therefore as a security," the SEC stated.
Last month, Consensys took legal action against the SEC, challenging its approach to regulating Ethereum and claiming the SEC had targeted the firm's MetaMask software.
In April, Consensys revealed it had received a Wells notice, a formal indication that the SEC was planning to initiate enforcement action against the company. However, Consensys announced last week that the SEC's enforcement division had decided to close its investigation into Ethereum.
What could be the impact of this on the Crypto Market?
The SEC's legal actions against Consensys and its associated staking services could have significant short-term and long-term impacts on the price of Ethereum and related crypto assets. In the short term, this heightened regulatory scrutiny is likely to create uncertainty in the market, potentially leading to volatility and a decline in Ethereum's price. Investors often react negatively to regulatory challenges, fearing increased legal risks and potential restrictions on the use of staking services, which are pivotal for Ethereum's network functionality and attractiveness.
Over the long term, the outcome of this legal battle could set a precedent for how other staking services and DeFi platforms are regulated. If the SEC's stance is upheld, it could lead to more stringent regulations, forcing companies to register and comply with securities laws, which might increase operational costs and reduce the profitability of staking services. This could result in decreased demand for staking, impacting the overall value proposition of Ethereum and causing a sustained downward pressure on its price.
Conversely, if Consensys successfully defends its case, it could reinforce the legitimacy of staking services and boost investor confidence. This could attract more institutional investment into Ethereum and related assets, potentially driving prices higher. The resolution of this case will be closely watched by the crypto community and could significantly influence the market's direction in the months to come.