The U.S. Securities and Exchange Commission filed a lawsuit against Ethereum software provider Consensys on Friday over its MetaMask service, alleging that the wallet tool was an unregistered broker “engaged in the business of offering and selling securities.” The SEC’s lawsuit also targeted Ethereum staking services Lido (LDO) and Rocket Pool (RPL), the third-party platforms that MetaMask uses to support its staking functionality.
The enforcement action represents the SEC’s latest attempt to categorize a broad swath of the crypto market as securities. Following the surprise approval of Ether ETF last month, the lawsuit also confirmed lingering suspicions that the SEC could still attempt to place liquid staking derivatives of ETH, such as Lido’s stETH token, under its supervisory jurisdiction. The agency has already enforced settlements related to staking services, including with Kraken, while Coinbase ended its staking services in some states after striking a deal with state securities regulators.
MetaMask is the most used wallet for Ethereum and a large number of other blockchains. In addition to offering the ability to store cryptocurrency purchased on other platforms, MetaMask lets users buy and sell digital assets directly in the app through its “Swaps” service – one of the key features under discussion in the SEC’s lawsuit, filed Friday in the U.S. Courthouse in the Eastern District of New York.
Consensys collects a fee for providing this service and has facilitated more than 36 million crypto transactions over the past four years, according to the SEC lawsuit. The SEC said that “at least 5 million” of these transactions involved “crypto asset securities.”
The SEC said those securities include Polygon (MATIC), Mana (MANA), Chiliz (CHZ), the Sandbox (SAND) and Luna (LUNA), though it suggested other digital assets could also be securities. Many of the cryptocurrencies named in Friday’s lawsuit have been named in previous SEC lawsuits as unregistered securities, though at least some of the issuing entities have disputed that characterization.
The SEC also investigated MetaMask’s “staking” feature, which allows users to deposit assets to secure the Ethereum blockchain in exchange for interest. That function is powered by Lido and Rocket Pool, two of the biggest names in decentralized finance. MetaMask users can deposit to those third-party staking services and in return earn a tradable receipt on their deposit, called a liquid staking token.
According to the SEC, MetaMask’s Lido and Rocket Pool integrations amount 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 (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 staked, liquid staking tokens, as the name implies, can be freely bought and sold.”
A Consensys representative told CoinDesk on Friday that the company “fully expected the SEC to make good on its threat and require our MetaMask software interface to register as a securities broker.”
“The SEC has been pursuing an anti-crypto agenda, led by ad hoc enforcement actions,” the representative said. “This is just the latest example of regulatory overreach – a transparent attempt to redefine established legal norms and expand the SEC’s jurisdiction through litigation.”
Friday’s lawsuit comes just weeks after Consensys announced that the regulator had ended its investigation into the company’s ties to Ethereum. Consensys referred to two letters that the SEC had sent to Consensys.
Those June 18 letters warned that the SEC could still take enforcement actions related to other issues. MetaMask was not mentioned in either letter.
Consensys, led by Ethereum co-founder Joe Lubin, sued the SEC in April, seeking legal relief against a SEC alleging that MetaMask was labeled a broker or that 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 are confident in our position that the SEC has not been given the authority to regulate software interfaces like MetaMask,” the Consensys representative said. “We will continue to vigorously pursue our case in Texas to decide these issues, as it is important not only to our business, but also to the future success of web3.”
UPDATE (June 28, 2024, 17:10 UTC): Adds extra detail everywhere.
UPDATE (June 28, 17:27 UTC): Adds SEC press release.
UPDATE (June 28, 2024, 18:04 UTC): Adds extra detail everywhere.
UPDATE (June 28, 2024, 18:11 UTC): Added Consensys statement.