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Consensys Responds to SEC Lawsuit Over MetaMask

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Following the SEC lawsuit where Consensys is accused of operating as an unregistered broker through its MetaMask software, the firm has issued a response.

The SEC accused MetaMask of carrying out activities similar to securities brokerage without the appropriate registrations through its swap and staking services. Moreover, this legal action, filed in the U.S. District Court for the Eastern District of New York, follows a Wells notice Consensys received in April.

SEC’s Lawsuit Against Consensys

According to the SEC, Consensys, via MetaMask, facilitated over 36 million crypto asset transactions, including 5 million that involved crypto asset securities, without the required registration. These activities are said to have earned Consensys more than $250 million in transaction fees.

The SEC is specifically concerned about MetaMask’s Swaps and Staking services as these, in the view of the regulator, involve the sale of unregistered securities tokens, including CHZ, LUNA, MATIC, MANA, and SAND.

Besides directly facilitating transactions, MetaMask Swaps is alleged to act as an intermediary by searching for the best exchange rates and managing customers’ assets through smart contracts. The staking aspect of MetaMask, which involved collaborations with entities such as Lido and Rocket Pool, reportedly also involved the offer and sale of securities through staking programs that were also unregistered.

Consensys’s Defense and Legal Strategy

As a result of the SEC’s legal actions, Consensys has come out in support of their legal stance, claiming that the SEC cannot regulate software interfaces like MetaMask as brokers. The company has decided to go to court in Texas for this very matter, stressing that this case is not only vital for Consensys but for the entire web3 industry.

Consensys claims that what the SEC has done is to overstep its regulatory mandate and change the legal precedent that has been set. The company has taken the position that as a software interface it does not translate to being a securities broker hence clearing up the allegations.

The legal conflict with the SEC is taking place at the background of the growing pressure from the regulatory authorities on the cryptocurrency market. This lawsuit is similar to other high-profile cases such as the current case against Coinbase. Consensys has also previously sued the SEC in Texas claiming that MetaMask Swaps and Staking are not brokers as they are software tools, with reference to the case SEC v. Coinbase.

Read Also: SEC Sues ConsenSys For Conducting Securities Via MetaMask

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Kelvin is a distinguished writer specializing in crypto and finance, backed by a Bachelor’s in Actuarial Science. Recognized for incisive analysis and insightful content, he has an adept command of English and excels at thorough research and timely delivery.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.





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Regulation

CTO Backs Consensys Amid SEC Lawsuit Over MetaMask Securities Sale

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2 days ago

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June 29, 2024

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In a developing legal battle, Ripple’s Chief Technology Officer (CTO) David Schwartz has indirectly voiced his support for Consensys Software Inc. This comes after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the company. The SEC claims that Consensys has been operating as an unregistered broker.

Ripple CTO Defends Consensys & MetaMask

Moreover, the SEC accused Consensys of engaging in the unregistered offer and sale of securities through its MetaMask platform. The latest lawsuit focuses on the services of MetaMask Swaps and the platform’s staking feature.

The SEC’s complaint, filed on Friday, June 28, alleges that Consensys’s operations through MetaMask constitute unregistered securities transactions. According to the SEC, MetaMask Swaps and MetaMask Staking involve pooling assets with the expectation of profits primarily derived from the efforts of others. This, the SEC argues, classifies these activities as securities transactions requiring registration.

As the lawsuit news emerged, the Ripple CTO’s defense of Consensys emerged in a series of exchanges on X, formerly known as Twitter. In several replies on X, he addressed various arguments about the nature of MetaMask’s services. One user suggested that MetaMask’s services qualify as securities due to the expectation of profits derived from Consensys’s efforts.

Hence, Schwartz countered by drawing a comparison to the diamond industry. He argued that just as DeBeer’s efforts do not determine the profits of diamond holders, MetaMask’s efforts do not determine users’ profits. “MetaMask’s efforts don’t determine your profits any more than DeBeer’s efforts determine the profits of people who hold diamonds,” Schwartz stated.

In addition, he emphasized that the source of profits from MetaMask Staking and Swaps is external and independent of MetaMask’s control. However, another user expressed skepticism, arguing that the presence of a direct business contract between MetaMask and its users implies a security.

Also Read: Ripple Vs SEC: Judge Torres Doctrine Stands, XRP Secondary Sales Are Not Securities

Schwartz Slashes MetaMask Securities Sale Claims

In response, Schwartz highlighted a crucial distinction between business and investment contracts. “Sure. But nothing about that business contract determines the profit users get. MetaMask takes an agreed cut for providing services to the users. The source and amount of the profit they split is outside of MetaMask’s controls and not dependent on their efforts,” he explained.

Schwartz further clarified his stance by stating, “An agreement of a party to provide management services and pass through of funds where the source of the profits shared is entirely outside the agreement and not due to any party’s efforts is not an investment contract.” According to him, the profits generated from MetaMask’s services are not a result of Consensys’s efforts but arise from external market conditions and user activities.

Amid the Ripple CTO’s statements, broader regulatory news suggests that District Judge Amy Berman Jackson concurred with Judge Torres’ stance regarding XRP’s programmatic and secondary sales. In the Binance vs. SEC case, Judge Jackson rejected the SEC’s claims about secondary BNB sales by non-Binance entities.

Moreover, this ruling sets a important precedent for current cryptocurrency-related legal cases in the U.S. Hence, companies like Coinbase, Consensys, and Kraken are expected to leverage this decision to strengthen their positions in their respective lawsuits. With this ruling, SEC attorneys can no longer argue that Judge Torres’ perspective on secondary sales lacks judicial support or adoption.

Also Read: Ripple News: Exec Makes Latest Comment On Tension With U.S. SEC

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The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.





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Regulation

Treasury and IRS Finalize Broker Rule, Defers DeFi Decision

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2 days ago

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June 28, 2024

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The US Department of the Treasury and the Internal Revenue Service (IRS) have released new tax guidelines for cryptocurrency brokers, which implements transaction reporting starting from 2025. This new regime, however, has postponed decisions on DeFi activities and unhosted wallet providers, since the IRS is still reviewing the 44,000 comments made by the public.

IRS’s New Reporting Requirements for Brokers

The new IRS rules requires the cryptocurrency brokers such as the trading platforms, hosted wallet services, and the digital asset kiosks to disclose the details of the customers’ asset movements and gains.

These rules, which will take effect from January 1, 2025, seek to integrate crypto brokers with conventional investment firms to file for the 1099 forms and the cost basis data starting from the year 2026.

Also, the IRS has clarified that the new requirements will also include stablecoin transactions and any high-value non-fungible tokens (NFTs), but ordinary sales of stablecoins below $10,000 and NFT gains below $600 annually do not need to be reported. This regulation is meant to enhance the compliance and decrease the evasion of taxes in the high-risk area of digital assets.

Deferred Decisions on DeFi and Unhosted Wallets

While the new rule provides clear directives for the big centralized exchanges like Coinbase and Kraken, it leaves decisions concerning DeFi activities and unhosted wallets’ providers to a later time. 

The IRS added that the non-custodial industry participants would not be barred from being treated as brokers but more analysis is required. The final rules for these entities are expected to be released in the later part of the year.

The IRS highlighted the difficulties of controlling non-custodial companies, noting that such firms may not possess the necessary customer data and transparency frameworks. This decision provides some reprieve to the DeFi sector and unhosted wallet providers as more time is bought in the formulation of better rules.

IRS Requirements for Stablecoins and NFTs

The IRS has explained that most ordinary stablecoin transactions will not need to be reported, with certain exceptions for large transactions and those generating more than $10,000 in annual revenue.

Stablecoin transactions will be recorded in a grouped manner rather than specific transactions to relieve the common cryptocurrency users while at the same time helping the IRS track whales’ activities.

For non-fungible tokens (NFTs) only those taxpayers who have earned $600 or more annually from NFT sales must file and report their total income. The IRS will require the taxpayer identification information, the number of NFTs sold, and the amount of profit made in these reports. The agency will oversee NFT reporting to ensure that it adequately helps in the enforcement of tax laws.

Industry Concerns and Compliance Burden

Introducing these tax regulations has been controversial, with significant pushback from the cryptocurrency industry. Concerns have been raised about the potential overreach of the U.S. government and the burdensome requirements on entities that do not traditionally function as brokers, such as miners and software developers.

The Blockchain Association and the Digital Chamber had flagged the overbreadth of information requested and the substantial compliance burden. They argue that the proposed rule could require the submission of billions of forms, imposing significant costs and time constraints on brokers. The IRS has estimated that the new rule will affect about 15 million people and 5,000 firms.

In response, the IRS stated that it aims to balance the need for comprehensive reporting with the industry’s capacity to comply. The agency also noted that any future changes in legislation regarding stablecoins could lead to adjustments in the tax rules.

Read Also: Digital Chamber Flags Privacy Concerns In IRS Digital Asset Tax Draft

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Kelvin is a distinguished writer specializing in crypto and finance, backed by a Bachelor’s in Actuarial Science. Recognized for incisive analysis and insightful content, he has an adept command of English and excels at thorough research and timely delivery.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.





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Ripple Executive Highlights Ongoing Struggles in U.S. Market

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2 days ago

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June 28, 2024

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Ripple Labs is facing significant regulatory hurdles in the United States. Cassie Craddock, the company’s managing director for the U.K. and Europe, recently emphasized the U.S. market’s challenges. While the firm battles with the Securities and Exchange Commission (SEC) over its operations, Ripple sees European regulatory advancements as a beacon of progress.

Ripple CEO Criticizes U.S. Crypto Regulations

The tension between Ripple (XRP) and the SEC affects its operations. The ongoing legal disputes underscore the U.S.’s complex regulatory environment for cryptocurrencies. Brad Garlinghouse, Ripple’s CEO, has voiced frustration over the lack of clear regulatory guidelines, which he believes stifles innovation in the sector. This ongoing struggle highlights the company’s difficulty navigating American regulatory waters, starkly contrasting its experiences in European markets.

Furthermore, Ripple’s Chief Legal Officer, Stuart Alderoty, pointed out the SEC’s recent legal setback, which involved the rescission a 2020 rule concerning proxy advisory firms. This rule, which was never implemented, would have imposed specific conditions on firms providing voting advice to shareholders. Alderoty’s comments link this incident to broader regulatory compliance issues and enforcement challenges faced by businesses under the SEC’s jurisdiction.

Also Read: Consensys Responds to SEC Lawsuit Over MetaMask, Here’s All

EU Advances with Clear Crypto Guidelines

In contrast to the U.S., Ripple has welcomed the introduction of the Markets in Crypto-Asset Regulation (MiCA) in the European Union. This framework, which initially came into force in mid-2023, aims to provide clear guidelines for the cryptocurrency industry. Craddock expressed optimism about MiCA, noting that it offers much-needed clarity for market participants. Although some ambiguities remain, the overall sentiment among Ripple executives is optimistic regarding the European regulatory landscape.

However, Marina Markezic, a leader at the European Crypto Initiative, has shared concerns about clarifying the MiCA provisions. The diverging approaches of the U.S. and EU towards cryptocurrency regulation are becoming increasingly evident. While the EU moves forward with definitive regulations encouraging industry growth and innovation, the U.S. remains embroiled in legal and regulatory complexities.

Also Read: Hong Kong’s Securities Regulator Flags Three Crypto Firms For Fraud

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Maxwell is a crypto-economic analyst and Blockchain enthusiast, passionate about helping people understand the potential of decentralized technology. I write extensively on topics such as blockchain, cryptocurrency, tokens, and more for many publications. My goal is to spread knowledge about this revolutionary technology and its implications for economic freedom and social good.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.





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