SEC Sues Consensys Over MetaMask, Alleging Unregistered Broker Activities

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Ethereum software provider Consensys, alleging its MetaMask service operated as an unregistered broker by engaging in the offer and sale of securities. The suit also includes Ethereum staking services Lido and Rocket Pool, which MetaMask uses for its staking feature.

This lawsuit marks the SEC's ongoing effort to classify various aspects of the crypto market as securities. Following the recent approval of the Ether ETF, the suit reinforces suspicions that the SEC aims to regulate liquid staking derivatives like Lido's stETH token. The SEC has previously secured settlements related to staking services, such as with Kraken, and prompted Coinbase to limit its staking services in some states.

MetaMask, the most popular wallet for Ethereum and other blockchains, allows users to store, buy, and sell digital assets directly within the app via its "Swaps" service. The SEC's lawsuit, filed in the U.S. courthouse in the Eastern District of New York, points to this feature as a central issue. Consensys earns fees from this service and facilitated over 36 million crypto transactions in the past four years, with at least 5 million involving "crypto asset securities" like Polygon (MATIC), Mana (MANA), Chiliz (CHZ), the Sandbox (SAND), and Luna (LUNA).

Additionally, the SEC scrutinized MetaMask's staking feature, which uses Lido and Rocket Pool to let users deposit assets for securing the Ethereum blockchain in exchange for interest. Users receive liquid staking tokens, such as stETH and rETH, which the SEC claims are unregistered securities.

Consensys anticipated this legal challenge. A representative stated that the SEC's actions represent regulatory overreach, aiming to expand its jurisdiction through litigation. Consensys, led by Ethereum co-founder Joe Lubin, had previously sought judicial relief against the SEC's potential designation of MetaMask as a broker and the classification of its staking service as a violation of federal securities laws. 

The lawsuit follows recent letters from the SEC indicating the possibility of future enforcement actions, though neither letter mentioned MetaMask specifically. Consensys remains determined to defend its position, asserting that the SEC lacks the authority to regulate software interfaces like MetaMask and emphasizing the broader implications for the future of web3.