A Year After Lubin Praised Gensler, His Company Consensys Sues SEC Over ‘Unlawful Seizure of Authority’

April 26, 2024

Last year, Joseph Lubin, the co-founder of Ethereum, stood in the spotlight as he extolled SEC Chair Gary Gensler as a “shining knight of decentralization.”

However, the sheen of this praise has significantly dulled. More than a year later, the narrative has taken an unexpected turn as Consensys, the Ethereum blockchain company Lubin founded, finds itself at odds with the very agency Gensler leads.

On a Thursday that marked a new chapter in the crypto saga, Consensys filed a 34-page lawsuit in a Texas federal court against the SEC. This legal move was not merely defensive but a clarion call for clarity in the foggy regulatory environment in the U.S. 

The lawsuit challenges what it describes as an “unlawful seizure of authority over ETH” by the agency and its commissioners, highlighting a stark departure from earlier days of praise. The core of Consensys’s argument hinges on the classification of Ether, Ethereum’s digital token, which it steadfastly claims should not be deemed a security. 

This distinction is crucial, as it affects how extensively the token can be regulated by the SEC. The lawsuit paints a dire scenario where every transaction of ETH could potentially breach securities laws, which could “bring the use of the Ethereum blockchain in the United States to a halt, crippling one of the internet’s greatest innovations.”

Consensys also pointed out that the SEC particularly targeted its MetaMask wallet software—a tool that allows users to self-custody ETH and other cryptocurrencies. The company revealed that it received a Wells notice on April 10, signaling the SEC’s intention to possibly enforce actions related to MetaMask’s Swaps and Staking services. 

This notice, coupled with allegations during a telephone conference that Consensys was operating as an unregistered broker-dealer, further escalated tensions. Consensys’s filing underscores a plea for fair notice under the Due Process Clause, arguing that the SEC’s abrupt policy reversal constitutes an overreach of power that not only threatens Consensys but the broader Ethereum network. 

The implications of this regulatory encroachment, according to Consensys, extend beyond just digital asset trading to the very heart of innovation, threatening new products, technologies, and American jobs catalyzed by blockchain technology.

“The U.S. Securities and Exchange Commission’s (SEC) threatened regulation of Ether as a security would jeopardize the United States’ ability to use Ethereum and similar blockchain technology. The implications would stretch far beyond digital asset trading, jeopardizing the future of countless new innovations, products and U.S. jobs that this next generation of the Internet will unleash,” Consensys said in its latest statement, adding, “That’s why we’ve taken the necessary step of suing the SEC, to stop its unlawful power grab.”

Furthermore, Lubin reinforced his commitment to preserving the decentralized ethos of Ethereum despite regulatory challenges, noting, “We don’t take this step lightly, but we feel compelled to act. Ethereum is for everyone.” 

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