SEC Sues Consensys Over MetaMask Staking, Broker Allegations

The
U.S.
Securities
and
Exchange
Commission
sued
Ethereum
software
provider
Consensys
over
its
MetaMask
service
Friday,
alleging
the
wallet
tool
was
an
unregistered
broker
that
“engaged
in
the
offer
and
sale
of
securities.”
The
SEC
suit
also
targeted
Ethereum
staking
services
Lido
(LDO)
and
Rocket
Pool
(RPL),
the
third-party
platforms
MetaMask
uses
to
power
its
staking
feature.

The
enforcement
action
represents
the
SEC’s
latest
attempt
to
categorize
a
broad
swath
of
the
crypto
market
as
securities.
After
the
surprise
Ether
ETF
approval
last
month,
the
suit
also
confirmed
lingering
suspicion
that
the
SEC
might
still
attempt
to
place
liquid
staking
derivatives
of
ETH,
like
Lido’s
stETH
token,
under
its
regulatory
remit.
The
agency
has
already
forced
settlements
tied
to
staking
services,
including
with
Kraken,
while
Coinbase
ended
its
staking
services
in
some
states
after
making
a
deal
with
state
securities
regulators.

MetaMask
is
the
most-used
wallet
for
Ethereum
and
a
host
of
other
blockchains.
In
addition
to
offering
users
the
ability
to
store
cryptocurrency
bought
on
other
platforms,
MetaMask
lets
users
buy
and
sell
digital
assets
directly
in-app
via
its
“Swaps”
service
–
one
of
the
key
features
at
issue
in
the
SEC’s
lawsuit,
which
it

filed
Friday
in
the
U.S.
courthouse
in
the
Eastern
District
of
New
York.

Consensys
collects
a
fee
for
providing
this
service
and,
according
to
the
SEC’s
suit,
facilitated
more
than
36
million
crypto
transactions
over
the
past
four
years.
The
SEC
said
that
“at
least
5
million”
of
these
transactions
involved
“crypto
asset
securities.”

The
SEC
said
these
securities
include
Polygon
(MATIC),
Mana
(MANA),
Chiliz
(CHZ),
the
Sandbox
(SAND)
and
Luna
(LUNA),
though
it
suggested
other
digital
assets
might
also
be
securities.
Many
of
the
cryptocurrencies
named
in
Friday’s
suit
have
already
been
named
in
previous
SEC
suits
as
unregistered
securities,
though
at
least
some
of
the
issuing
entities
have
disputed
this
characterization.

The
SEC
also
scrutinized
MetaMask’s
“staking”
feature,
which
lets
users
deposit
assets
to
secure
the
Ethereum
blockchain
in
exchange
for
interest.
That
feature
is
powered
by
Lido
and
Rocket
Pool
–
two
of
the
biggest
names
in
decentralized
finance.
MetaMask
users
can
deposit
into
those
third-party
staking
services
and
earn
a
tradeable
receipt
on
their
deposit,
called
a

liquid
staking
token,
in
exchange.

The
SEC
said
MetaMask’s
Lido
and
Rocket
Pool
integrations
amounted
to
“investment
contracts,”
suggesting
the
agency
views
their
popular
stETH
and
rETH
liquid
staking
tokens
as
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,
who
create
and
issue
liquid
staking
tokens
(called
stETH
and
rETH)
in
exchange
for
staked
assets,”
the
SEC
said.
“While
staked
tokens
are
generally
locked
up
and
cannot
be
traded
or
used
while
they
are
staked,
liquid
staking
tokens,
as
the
name
implies,
can
be
bought
and
sold
freely.”

A
representative
for
Consensys
told
CoinDesk
on
Friday
that
the
company
“fully
expected
the
SEC
to
follow
through
on
its
threat
to
claim
our
MetaMask
software
interface
must
register
as
a
securities
broker.”

“The
SEC
has
been
pursuing
an
anti-crypto
agenda
led
by
ad
hoc
enforcement
action,”
the
representative
said.
“This
is
just
the
latest
example
of
its
regulatory
overreach
–
a
transparent
attempt
to
redefine
well-established
legal
standards
and
expand
the
SEC’s
jurisdiction
via
lawsuit.”

Friday’s
lawsuit
comes
just
weeks
after

Consensys
announced
the
regulator
had
ended
investigations
into
the
company
tied
to
Ethereum,
citing
two
letters
the
SEC
sent
it.

Those
letters
from
June
18
did
caution
that
the
SEC
might
still
bring
enforcement
actions
tied
to
other
issues.
Neither
letter
mentioned
MetaMask.

Consensys,
which
is
led
by
Ethereum
co-founder
Joe
Lubin,

previously
sued
the
SEC
in
April
looking
for
judicial
relief
against
the
SEC
possibly
calling
MetaMask
a
broker
or
saying
that
its
staking
service
violated
federal
securities
laws.
That
lawsuit,
filed
in
Texas,
also
sought
a
court
order
declaring
ether
(ETH)
to
be
not
a
security
and
to
end
the
SEC’s
investigation
into
Consensys.

“We
are
confident
in
our
position
that
the
SEC
has
not
been
granted
authority
to
regulate
software
interfaces
like
MetaMask,”
said
the
Consensys
representative.
“We
will
continue
to
vigorously
pursue
our
case
in
Texas
for
ruling
on
these
issues
because
it
matters
not
only
to
our
company
but
the
future
success
of
web3.”

UPDATE
(June
28,
2024,
17:10
UTC):

Adds
additional
detail
throughout.

UPDATE
(June
28,
17:27
UTC):

Adds
SEC
press
release.

UPDATE
(June
28,
2024,
18:04
UTC):

Adds
additional
detail
throughout.

UPDATE
(June
28,
2024,
18:11
UTC):

Adds
statement
from
Consensys.