Consensys Challenges SEC Over Ethereum Regulation

Consensys, a prominent provider of web3 and blockchain technology, has taken legal action against the Securities and Exchange Commission (SEC) and its commissioners, alleging an unlawful encroachment on Ethereum. The lawsuit contends that the SEC's recent actions constitute an unauthorized assumption of jurisdiction over Ethereum, employing ad hoc enforcement tactics against Consensys and potentially other entities.

Seeking resolution in federal court, Consensys demands a declaration confirming that Ethereum (ETH) does not qualify as a security. Furthermore, Consensys asserts that any investigation based on the presumption of ETH as a security would infringe upon its Fifth Amendment rights and contravene the Administrative Procedures Act. The company maintains that its MetaMask platform does not meet the criteria of a broker under federal law and asserts compliance with securities regulations regarding its staking service. Additionally, Consensys requests an injunction preventing the SEC from probing or taking enforcement actions related to MetaMask's Swaps or Staking features.

The legal dispute arises following a notice from the SEC received by Consensys on April 10, signaling the agency's intent to pursue enforcement actions concerning Consensys' MetaMask wallet program.

Consensys rebuts allegations of brokerage activity, asserting that MetaMask merely serves as an interface, neither holding users' digital assets nor executing transactions. Moreover, the complaint highlights the inconsistency of the SEC's expanding control over Ethereum with its earlier classification of the cryptocurrency as a commodity rather than a security.

Notably, the Commodities Futures Trading Commission (CFTC), the SEC's counterpart regulating derivatives associated with Ethereum, also holds jurisdiction over Ethereum.

Consensys argues in its lawsuit that the SEC's recent efforts to claim authority over Ethereum violate the principle of fair notice under the Due Process Clause, citing an established regulatory consensus under which it conducted its business operations.

The lawsuit underscores the detrimental impact of the SEC's purported control over Ethereum on both the Ethereum network and Consensys, invoking the "major questions doctrine" to assert limits on federal regulators' authority beyond their Congressional mandate.

Recent judicial proceedings involving Terraform Labs and Coinbase have already seen judges reject the notion of cryptocurrency falling within certain regulatory frameworks.