The battle between ConsenSys and the SEC may be related to the future of DeFi
If MetaMask is labeled as "illegal," the DeFi industry may face harsher crackdowns.Author: Rhythm BlockBeats
On April 10, the U.S. SEC issued a "Wells Notice" to Ethereum infrastructure development company ConsenSys, indicating that the SEC is providing the company with a final opportunity to rebut any allegations. The SEC stated that by providing the MetaMask wallet software, ConsenSys is acting as an unregistered securities broker.
In response, ConsenSys denied acting as a broker and stated that the wallet is "simple and user-friendly," and "does not hold customers' digital assets or execute any trading functions."
On April 26, ConsenSys decided to take preemptive action and formally sued the SEC, accusing it of "illegally seizing power over Ethereum." To this end, ConsenSys founder Joseph Lubin called for DEGEN on Farcaster and stated that any DEGEN tips received would be used to defend the Ethereum ecosystem, with many members of the crypto community participating in tipping to show support.
The MetaMask wallet created by ConsenSys provides users with all the infrastructure needed to explore web3, from managing their identities, sending and receiving cryptocurrencies, to connecting to decentralized applications built on Ethereum. According to ConsenSys's lawsuit, applications like MetaMask that allow people to buy, sell, and transfer Ethereum on their own are not securities brokers, and MetaMask's staking services do not violate securities laws.
At the same time, ConsenSys believes that declaring MetaMask as a securities broker would effectively prevent web3 developers from continuing to build the next generation of applications and would prohibit the SEC from investigating or taking enforcement action related to MetaMask's exchange or staking functions.
MetaMask's Notification Implies a DeFi Crisis
The core debate of this regulatory storm lies in the SEC defining MetaMask, a wallet application, as a securities broker.
The parent company of MetaMask, ConsenSys, also develops products such as the Infura development suite, Diligence for smart contract auditing, Ethereum Layer 2 Linea, Ethereum client Teku, and Besu. Perhaps due to ConsenSys founder Joseph Lubin being one of the co-founders of Ethereum, ConsenSys seems to have inherited certain genes from Ethereum, using the crypto vision as a compass for its business layout.
In 2023, ConsenSys launched the Linea mainnet, released MetaMask Snaps, and successively introduced initiatives like the Web3 Fellowship program and Linea DeFi Voyage. In September 2023, to better support Web3 builders, ConsenSys announced the closure of its development tools Truffle and Ganache, shifting the focus of the Truffle team to expanding its Infura, MetaMask Snaps, and SDK products.
It can be said that ConsenSys has built the basic framework for the crypto world. After years of effort, MetaMask has now become one of ConsenSys's most successful incubation projects and the leading wallet in terms of market share.
However, the SEC's actions against MetaMask indicate that regulatory pressure on the entire crypto industry, especially DeFi, is gradually increasing in the U.S. If MetaMask is labeled as "illegal," the entire DeFi industry may face harsher repercussions.
Additionally, in recent months, the SEC has filed lawsuits against cryptocurrency exchanges such as Binance.US, Binance, and Kraken, and even the leading DEX Uniswap recently received a "Wells Notice." Although Uniswap founder Hayden Adams promptly issued an open letter in response, the market reacted sensitively to the news, causing the UNI price to drop sharply.
In the letter, Hayden mentioned that the team believes the products they provide are legal and specifically emphasized Uniswap's status as an internet company based in the U.S. to demonstrate its long-standing commitment to compliance. Hayden also noted that this battle with the SEC would last for several years, and they are prepared to appeal to the Supreme Court.
Related reading: "Can Uniswap, which has always been 'protected' by the U.S. courts, win against the SEC this time?"
However, ConsenSys was quick to take action and struck back at the SEC first. Subsequently, companies like the Blockchain Association and Legit Exchange followed suit, filing similar preemptive lawsuits in an attempt to prevent the SEC from classifying certain crypto companies or assets as securities.
