Key Insights:
The SEC has charged MetaMask for selling unregistered securities, acting as a broker and offering crypto exchange services.
Most of the charges arise from an apparent need to understand how crypto markets work.
The receipt of liquid re-staking tokens has been classified as a purchase, far from reality.
The SEC has also charged Lido and Rocket Pool in the same case.
The SEC has charged MetaMask for offering unregistered securities, facilitating the offering of such securities, and acting as an unregistered exchange. The whole case rests on the MetaMask staking program, where Lido Staking and Rocket Pool provide these services to MetaMask users.
According to the regulator, Consensys (via MetaMask) has offered unregistered securities on behalf of staking platforms like Lido and Rocket Pool since January 2023. The SEC adds that it has acted as a broker since October 2020.
As a result, both Lido Staking and Rocket Pool have also been charged with selling unregistered securities.
Here, the term unregistered securities is used for liquid staking tokens. The process of getting these tokens has been termed selling because users get these ERC-20 tokens after depositing another ERC-20 token, such as Shiba Inu.
Though the process seems analogous to a crypto purchase, it is far from a spot transaction.
The charges against MetaMask might not hold much value because most allegations seem inspired by a clear lack of understanding. This was also seen when the SEC investigated Ethereum, only to close its case days after approving the ETFs.
Despite all the SEC's allegations, the charge that MetaMask is an unregistered exchange or even an exchange might not hold ground.
This is because, unlike the Coinbase wallet, which has its own exchange, MetaMask routes buy and sell orders via third-party exchanges like Transak and OnRamp.money.
MetaMask does not play any role in spot buying and selling transactions except for a wallet, which any other wallet can play.
Also, the charge that MetaMask solicited money from users by labelling crypto quotes as "best" might fail. The term best referred to the lowest buying and the highest selling prices at any instant and not in any soliciting manner.
As per US law, a broker is a person who facilitates a transaction between a buyer and seller for a commission.
The SEC's charges that MetaMask is a broker contradicts this definition. The wallet does not charge any commission for buying or selling crypto.
In crypto, swapping is not considered an act of buying or selling. Instead, it's a simple conversion between two cryptos on the same blockchain, a re-packaging.
The two cryptos being swapped for all technical purposes are also modified versions of the native tokens and not entirely new cryptocurrencies. For example, USDT is a token that can be obtained when ETH is re-packaged into, say, 3500 subunits.
The SEC needs to provide clear information about the charges surrounding the MetaMask swap. We assume this refers to the percentage fee that MetaMask charges for swapping.
MetaMask could get into trouble here. If the courts interpret the swapping charge of 0.875% as a commission, things might soon become complicated for MetaMask.
Even though the other cases seem flimsy, the case of liquid restaking tokens might land Consensys in trouble. This is because the LP tokens are ERC-20-based cryptocurrencies for all purposes, which allows them to be freely traded, swapped and sent to others.
The SEC seems unchecked despite the FIT-21 Act regulating crypto in the US. There are a couple of reasons why the SEC might not be overreaching its powers this time.
Firstly, the act classifies any crypto with 20% or more tokens with a single user (individual or legal entity) as a token. This brings it under the SEC's purview. Since MetaMask facilitates several cryptos coming under this classification, it leaves a space for the SEC to intervene.
Secondly, since the act blesses the SEC and the CFTC with the joint responsibility of regulating crypto exchanges, the allegations that MetaMask is an exchange seem to be a tactic to bring it under the SEC's regulatory powers.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.