SEC Sues Consensys Over MetaMask Staking, Broker Allegations

The U.S. Securities and Exchange Commission sued Ethereum software provider Consensys over its MetaMask service Friday, alleging the wallet tool was an unregistered broker that “engaged in the offer and sale of securities.” The SEC suit also targeted Ethereum staking services Lido (LDO) and Rocket Pool (RPL), the third-party platforms MetaMask uses to power its staking feature.

The enforcement action represents the SEC’s latest attempt to categorize a broad swath of the crypto market as securities. After the surprise Ether ETF approval last month, the suit also confirmed lingering suspicion that the SEC might still attempt to place liquid staking derivatives of ETH, like Lido’s stETH token, under its regulatory remit. The agency has already forced settlements tied to staking services, including with Kraken, while Coinbase ended its staking services in some states after making a deal with state securities regulators.

MetaMask is the most-used wallet for Ethereum and a host of other blockchains. In addition to offering users the ability to store cryptocurrency bought on other platforms, MetaMask lets users buy and sell digital assets directly in-app via its “Swaps” service – one of the key features at issue in the SEC’s lawsuit, which it filed Friday in the U.S. courthouse in the Eastern District of New York.

Consensys collects a fee for providing this service and, according to the SEC’s suit, facilitated more than 36 million crypto transactions over the past four years. The SEC said that “at least 5 million” of these transactions involved “crypto asset securities.”

The SEC said these securities include Polygon (MATIC), Mana (MANA), Chiliz (CHZ), the Sandbox (SAND) and Luna (LUNA), though it suggested other digital assets might also be securities. Many of the cryptocurrencies named in Friday’s suit have already been named in previous SEC suits as unregistered securities, though at least some of the issuing entities have disputed this characterization.

The SEC also scrutinized MetaMask’s “staking” feature, which lets users deposit assets to secure the Ethereum blockchain in exchange for interest. That feature is powered by Lido and Rocket Pool – two of the biggest names in decentralized finance. MetaMask users can deposit into those third-party staking services and earn a tradeable receipt on their deposit, called a liquid staking token, in exchange.

The SEC said MetaMask’s Lido and Rocket Pool integrations amounted to “investment contracts,” suggesting the agency views their popular stETH and rETH liquid staking tokens as 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, who create and issue liquid staking tokens (called 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 they are staked, liquid staking tokens, as the name implies, can be bought and sold freely.”

A representative for Consensys told CoinDesk on Friday that the company “fully expected the SEC to follow through on its threat to claim our MetaMask software interface must register as a securities broker.”

“The SEC has been pursuing an anti-crypto agenda led by ad hoc enforcement action,” the representative said. “This is just the latest example of its regulatory overreach – a transparent attempt to redefine well-established legal standards and expand the SEC’s jurisdiction via lawsuit.”

Friday’s lawsuit comes just weeks after Consensys announced the regulator had ended investigations into the company tied to Ethereum, citing two letters the SEC sent it.

Those letters from June 18 did caution that the SEC might still bring enforcement actions tied to other issues. Neither letter mentioned MetaMask.

Consensys, which is led by Ethereum co-founder Joe Lubin, previously sued the SEC in April looking for judicial relief against the SEC possibly calling MetaMask a broker or saying that its staking service violated federal securities laws. That lawsuit, filed in Texas, also sought a court order declaring ether (ETH) to be not a security and to end the SEC’s investigation into Consensys.

“We are confident in our position that the SEC has not been granted authority to regulate software interfaces like MetaMask,” said the Consensys representative. “We will continue to vigorously pursue our case in Texas for ruling on these issues because it matters not only to our company but the future success of web3.”

UPDATE (June 28, 2024, 17:10 UTC): Adds additional detail throughout.

UPDATE (June 28, 17:27 UTC): Adds SEC press release.

UPDATE (June 28, 2024, 18:04 UTC): Adds additional detail throughout.

UPDATE (June 28, 2024, 18:11 UTC): Adds statement from Consensys.