Last month, news broke that the U.S. Securities and Exchange Commission (SEC) had subpoenaed the Ethereum Foundation in its first move in preparing for a potential lawsuit. All the world knows at this point is that, in fact, “National power” The missing “canary” of the for-profit foundation has reportedly been in contact with the organizing group behind the creation of the second-largest cryptocurrency, Ether (ETH).
Consensys is a Fort Worth, Texas-based incubator that has developed many core tools for the Ethereum ecosystem, including the largest non-custodial wallet MetaMask, node infrastructure service Infura, and clients such as Besu and Teku. In many cases, Ethereum would not be what it is today without ConsenSys.
“What I'm saying is that ConsenSys likes to do more than just talk,” said ConsenSys Senior Advisor and Global Regulatory Affairs, speaking at CoinDesk's Consensus 2024 conference in May. director Bill Hughes said in an interview. . The company has spun out a number of projects built internally to be run or managed privately by users. “Moving from centralized to decentralized is difficult,” Hughes said.
ConsenSys’ big role in the ecosystem if SEC builds case to declare ETH as a security, similar to similar blockchain projects like Solana (SOL), Cardano (ADA), and Ripple (XRP) may be considered. There are many reasons why redefining ETH as a security makes no sense. What is remarkable is that a multibillion-dollar economy has already been built on the tacit understanding that this is not the case.
But that's not all authorities can claim. Unlike Bitcoin, Ethereum's founder Vitalik Buterin still exists. There is an open question as to whether the launch of ETH tokens was an “investment contract.” Additionally, the aforementioned Ethereum Foundation still plays an active role in coordinating development. The question is whether “there is a common enterprise” to build Ethereum, and whether investors expect practice from that work.
This is a difficult legal topic, but the SEC's reluctance to provide clear guidance regarding cryptocurrencies does not make it any easier. In fact, securities watchdogs have issued special-purpose broker-dealer licenses to trading platforms seeking to list ETH as securities, lied to courts to freeze the funds of small blockchain projects, etc. , they may even be deploying backdoor strategies to cause chaos. .
CoinDesk reached out to Consensys' Bill Hughes to learn more about ETH securities issuance, Consensys' role in the ecosystem, and how specially licensed broker-dealer Prometheum could use it as a wedge to deny approval of a Spot Ether ETF. I asked whether there is a possibility that
Are crypto lobbyists doing a good job?
I think so. That's difficult because the policy space is so complex. The subject matter is quite confusing. Most people you need to talk to just don't care. I mean, I'm biased. I serve on the board of directors for the Blockchain Association, and the association has done a very good job of keeping its members informed, educating them about the Hill, and making smart plans for how to pursue our views. doing. When production policy ends. Cryptocurrency lobbyists are not a monolith. But because we know the Hill, and we fundamentally understand what technology is, what it can do, and how we can get public policy to address some of the risks. Therefore, we have very talented people.
How much of your role at ConsenSys involves educating people in DC?
Just not too much. It depends on what's going on. If there's a need, I'm probably the one to do it or coordinate it. But it ebbs and flows over time. Consensys is not a large bureaucratic organization, a role that has existed for decades. I need to make decisions about what needs to be done and how to do it. This may or may not require paying more attention to policy discussions and engaging with legislators and other policy stakeholders in and around DC. .
So I can say that over time I have certainly started paying more attention to my inner self. I wear two hats in that regard. Over time, my attention became increasingly focused on advising internal and product teams as the company expanded, our service offerings became more diverse, and the regulatory landscape evolved globally. Ta.
Two related questions: Do you think the SEC is likely to file a lawsuit against the Ethereum Foundation, and what is the strongest argument that ETH is not a security?
Therefore, I will not specifically discuss the first question. I don't think the SEC is considering filing a lawsuit against any particular party related to Ethereum. The usual way they declare tokens to be securities is usually to go after a third party and call other tokens securities in the process. [like naming SOL or ADA in the Coinbase suit].In some cases, putative security token issuers have been tracked down. [like Ripple], But there's no need for that. I think this report is solid enough to say with confidence that the SEC is investigating Ethereum.
Presumably they would flip like this [ETH’s] Classification based on the Investor Protection Act. Note that as recently as October 2023, the SEC allowed Ethereum-based futures ETFs to be traded on stock exchanges. This implies that the asset underlying the futures contract is not a security. So it appears that something happened between then and now that reversed the SEC's position.
With so many people investing in this ecosystem, it's certainly natural for the market to be very wary of this. For the SEC to completely change course in this way would undermine long-established facts about what Ethereum is, at least as the market thought it was, and would be a dangerously disruptive move for Ethereum as a whole. . Therefore, it will be something that should be closely monitored.
What do you think is happening with Promethium? Is this an example of the SEC picking a winner?
Last night I was reading a legal article blog about promethium. It noted that the entity, which holds a special purpose broker-dealer license, does not require formal SEC approval for how it operates. Additionally, some guidance was issued about four years ago, but that's it. The fact that he has only had one special purpose broker-dealer in his four and a half years is a testament to how effective this regulatory program has been.
If Promethium asserts that Ethereum is a security, the SEC would not have to specifically approve it, but the SEC would see no need to declare it on its own in any way, just an opportunity for it to change as a result. That position that may become. In that case, the SEC would need to coordinate with the CFTC, but the CFTC does not seem to have done so yet, and the SEC would need to go through some process to trade products (futures products) that are currently only supervised by the CFTC on platforms that are supervised. In some way, it will be changed to a product that is compatible with the market. By both institutions. At Law Blog, we've identified at least some precedent for that, but it raises so many questions.
Regarding the first question, it is a remarkable coincidence that the SEC appears to be taking a different approach to Ethereum, at least rhetorically and tactically, and it just so happens that the first-ever SPDB is essentially This coincides with the fact that it materialized out of nowhere and was brought into the world. The forefront of political consciousness in the cryptocurrency debate in DC
If you look at who Promethium's attendees are at Congressional hearings, you'll find some lobbyists with a very strange relationship. “How does someone from New York who runs SPDB know about a former Democratic Party chairman from Tennessee?” It's safe to say there's some kind of behind-the-scenes politics going on. I don't like conspiracy theories, but there's a lot about what's going on in Promethium that makes me uncomfortable.
Let's see what happens as they declare Ethereum to be the first asset they manage. I think you can see that fact somewhere in the rejection of the Spot Ethereum ETF.
Do you think MetaMask will issue tokens? And are there any regulatory reasons for not doing so, or is it purely functional?
What I'm trying to say is that Consensis likes to do more than just talk. Metamask is the best, most trusted, and most useful wallet for the ecosystem in which it operates. snap is going well.As it turns out, the goal is not only to create a new type of Internet browser that we have complete control over, but also to [Lubin] After all, the company really believes passionately in a new paradigm for how projects like this can be owned, maintained, and sustained over time.
Moving from centralized to decentralized is difficult. While we haven't announced anything about MetaMask in general, it's safe to say that something as big as MetaMask shouldn't be solely owned and operated by Consensys. It should be owned and operated by the community. Mechanisms that decentralize things often involve tokens. But when and how that happens, there's nothing to report on that.
Are there any similarities between working at ConsenSys and working at the White House?
I think yes. I've worked in his two White Houses, and they tend to be quite hierarchical. That's the consensus to some extent. But it's much flatter in terms of where ideas come from, how we ask for feedback, how we come up with new ideas, and how we work, mentor, and collaborate with each other. The White House is all about the president's agenda, but consensus is an agenda created through agreement. We have a unique mission, vision and values that are well communicated throughout the company. What we believe determines what we focus on.
Consensis has a very family atmosphere. You don't get that family atmosphere in the White House. People are very fickle in the White House. There are a lot of zero-sum games politically in the White House.
However, both are similar in the sense that they have leaders who stand out in their influence throughout the organization because they have a singular vision to achieve. Whether it's the White House, ConsenSys, or any other organization, when you share your ideas or express your opinions on what to do next, the crowd listens more closely. There are people I think.
Is there anything you’re looking forward to about Consensus?
To tease the consensus panel, news has come out that Uniswap has apparently received a Wells Notice. I think it's safe to predict that this is the SEC's first attack on a new front in the fight against cryptocurrencies. So by the time the panel starts, there will probably be a fair amount of SEC-related news that I and the other panelists can really listen to.
Are you specifically mentioning decentralized exchanges as a new front for the SEC?
No, Fortune is just reporting that Uniswap has received a Wells Notice. This means that a lawsuit from the SEC against Uniswap is pending. And what I'm saying is, I don't think it's going to be a one-time item.
Well, probably not. Who do you think is more likely to follow?
What I'm saying is that in practice, the SEC generally moves to sue someone in the same category and then move on to another category, unless there's really wrongdoing, not just registration violations. . Binance had to sue for all sorts of fraud-related reasons. They sued Coinbase and Kraken. Let's see if they sue other DEXs. But with Uniswap, you can also stop on a DEX basis.
If Uniswap didn't run its own website (the main portal to the Uniswap protocol), would that be any legal protection for them?
Let's take a look. The SEC points to where users may be violating the rules, and whether it points to the Uniswap front end as the problem or what Uniswap Labs may be doing regarding protocol upgrades, updates, maintenance, and marketing. You're very imaginative about what you're pointing out. Typically.
As long as these reports are accurate, I think at least both, if not the other theories, hold true. It's hard to say for sure, but I don't think Uniswap would hide its tail in such a situation. I expect them to fight.
Correction (April 18th): Consensys is not currently located in Brooklyn, New York.
