In a significant escalation of its crypto enforcement efforts, the Securities and Exchange Commission (SEC) has filed charges against Consensys Software Inc., the developer of the popular MetaMask crypto wallet and suite of services. The complaint, filed on June 28, alleges that Consensys has operated and continues to operate as an unregistered broker and has engaged and continues to engage in the unregistered offer and sale of securities through two MetaMask staking programs.

This action represents a new front in the SEC’s crypto crackdown, as it targets a major infrastructure provider rather than a token issuer or exchange. The SEC is signaling that no part of the crypto ecosystem is beyond its reach by going after the company behind one of the most widely used self-custodial cryptocurrency wallets.

The complaint focuses on two key MetaMask services:

1. MetaMask Swaps: The SEC alleges that since October 2020, Consensys has acted as an unregistered broker through its MetaMask Swaps service, which allows users to exchange one crypto asset for another. According to the complaint, Consensys violated broker registration requirements by soliciting investors, providing investment advice, routing orders, and receiving transaction-based compensation for certain crypto asset securities — all without registering with the SEC.
2. MetaMask Staking: The SEC claims that since January 2023, Consensys has engaged in the unregistered offer and sale of securities through its MetaMask Staking service. Specifically, the complaint focuses on Consensys’s offering of staking programs from Lido and Rocket Pool, which the SEC deems to be investment contracts and, therefore, securities.

In bringing these charges, the SEC is taking an expansive view of what constitutes broker activity in the crypto space. The complaint details how Consensys’s software and smart contracts intermediate transactions between users and liquidity providers, demonstrating the SEC’s willingness to look past claims of decentralization and focus on its view of how the economic realities of these services function.

The SEC’s targeting of MetaMask Staking is particularly significant, as it puts the entire liquid staking sector on notice. By deeming Lido’s and Rocket Pool’s liquid staking programs to be securities, the SEC is potentially imperiling a major segment of the DeFi industry that has grown rapidly in recent years. Moreover, without specifying its reasoning, the SEC implies in its complaint that investors’ receipt of separate tokens to evidence their pro-rata interest in the MetaMask Staking pools and rewards—namely stETH (for participation in the Lido Pool) and rETH (for participation in Rocket Pool)—coupled with the tradability of such tokens on secondary markets somehow buttresses its claim that the offer and sale of such pools by Consensys constitutes the offer and sale of investment contracts. Previously, the SEC has alleged in prior enforcement actions that firms’ offering of staking-as-a-service programs constituted the offer and sale of investment contracts regardless of whether they involved the issuance of liquid staking tokens.

The outcome of this case could have far-reaching consequences for the structure of crypto markets and the ability of infrastructure providers to operate without SEC registration. Companies offering similar wallet, swapping, or staking services should assess their potential regulatory exposure in light of the SEC’s allegations against Consensys.

Ultimately, this case underscores the urgent need for regulatory clarity in the crypto space. As the SEC continues its enforcement-driven approach to regulation, many in the industry are looking to legislative solutions. The Financial Innovation and Technology for the 21st Century Act, a bipartisan bill recently passed the House in a 279-136 vote, aims to provide a comprehensive regulatory framework for digital assets. If passed, this bill could address many of the uncertainties surrounding crypto regulation, including the classification of various crypto assets and the regulatory status of infrastructure providers like Consensys. However, until such legislation is enacted, crypto companies will continue to operate in a state of legal uncertainty, with the threat of SEC action looming over their activities.

Click here to access information regarding the SEC’s enforcement action against Consensys.