SEC Sues Consensys, Web3 Industry Faces New Challenges

As the industry focuses on the SEC's stance on the ETH ETF, the SEC suddenly filed a lawsuit against the blockchain technology company Consensys on June 29. The SEC accuses Consensys's MetaMask wallet of violating securities laws with its Swap and staking products, and lists Lido and Rocket Pool's liquid staking tokens stETH and rETH as unregistered "securities."

This news has caused a stir in the industry. Data shows that the sentiment indicators for Lido and MetaMask have both experienced a significant decline. Lido fell from 21 to -9, while MetaMask plummeted from 33 to -69, with sentiment shifting from positive to very negative.

The price of the coin also fluctuated accordingly. On the day the lawsuit news was released, the price of Lido dropped from a high of $2.43 to a low of $1.86, a decline of over 23%.

As the most widely used wallet in the Web3 space and an important player in the ETH staking sector, the lawsuit faced by MetaMask and Lido will undoubtedly have a significant impact on their development prospects and the entire industry.

Consensys and SEC: Ongoing Legal Dispute

On April 25 this year, Consensys filed a lawsuit in the Northern District Court of Texas due to the SEC's attempt to classify Ethereum as a security. Consensys believes that, although the SEC has previously stated that ETH does not fall under the category of securities, the SEC is still trying to bring ETH under its regulatory scope.

Origin of the Event

On April 10, the SEC issued a "Wells Notice" to Consensys, indicating it would recommend enforcement action against Consensys on the grounds that its MetaMask Swaps and Staking products violated federal securities laws. A Wells Notice is a formal notification from the SEC before taking enforcement action, allowing the party under investigation to provide written or oral defense before the SEC makes a final decision.

Focus of the Litigation

The SEC believes that features related to MetaMask involve unregistered securities trading, violating federal securities laws. Consensys, on the other hand, argues that Ethereum should not be considered a security and that the functionalities of MetaMask do not involve securities trading, thus there is no illegal activity.

The SEC's lawsuits are usually based on the following points:

1. Unregistered securities offerings: Allegations that certain token issuances did not comply with the registration requirements of U.S. securities law.
2. Misleading investors: Claiming that risks were not adequately disclosed to investors during the token issuance process.

Potential Impact

If the court rules that Ethereum is a security, it will have a significant impact on exchanges and institutions holding large amounts of ETH, and may also affect the approval process for ETH ETFs. Consensys believes that the SEC's illegal power expansion over ETH will have catastrophic consequences for the Ethereum network and Consensys.

The SEC's lawsuit could have far-reaching implications:

1. Regarding Consensys: If the allegations are confirmed, it may face hefty fines, compensation for investor losses, and business rectifications.
2. For the cryptocurrency industry: It may become a landmark event for the SEC to strengthen regulations, prompting more companies to reassess their compliance status.
3. Market Reaction: May trigger short-term market volatility, especially for projects and tokens related to Consensys.

Escalation of Contradictions

In an earlier lawsuit, Consensys questioned the SEC. On June 18, the SEC provided a vague response, indicating that it does not currently recommend taking enforcement action against Consensys, but has not abandoned the investigation.

Legal Perspective

Consensys legal advisor Laura Brookover stated that the entire investigation has concluded, but the SEC may still file lawsuits against other entities that provide or sell Ethereum.

However, there are also opposing views that argue the SEC's statement did not explicitly indicate that the investigation was "over" and may only mean that no action will be taken against Consensys for the time being.

Industry Focus

Currently, the industry is more concerned about whether this lawsuit will affect liquidity staking projects such as Lido and the approval of ETH ETFs. Laura believes that the SEC's investigation into these activities falls under an independent category and does not affect the conclusion of the Ethereum 2.0 investigation.

Conclusion

Although the details of the lawsuit have not been fully disclosed, it is certain that the integration of Web3 with the real world is becoming increasingly close, and relevant policies and regulations are finding it difficult to keep Web3 at bay. We should remain confident about this.

The conflict between the SEC and Consensys reflects the complexity of the cryptocurrency industry in terms of legal and regulatory issues. In the future, finding a balance between innovation and compliance will be an important challenge for the entire industry. We look forward to the final outcome of this case, hoping it can provide valuable insights for the healthy development of the industry.