Ethereum wins a major battle against the SEC, but Gensler’s war rages on

Consensys, the maker of the popular MetaMask crypto wallet, announced this week that the Securities and Exchange Commission has backed off its unpopular campaign to investigate developers who use Ethereum. The move is in line with the growing legal consensus that Ethereum is a commodity, not a security, which puts it outside the agency's jurisdiction. The announcement, however, also contained a dark lining that reveals SEC Chair Gary Gensler's crusade against Ethereum is far from over.

You may recall that things between Consensys and the SEC came to a head when the company took the bold step of suing in April, asking a federal judge to force the agency to back off. The lawsuit came as a preemptive strike after the SEC had telegraphed it was on the verge of filing charges against the company after a year-long campaign of issuing subpoenas to developers who use Ethereum.

The SEC's legal position became tenuous after the agency, under growing political pressure, approved Ethereum ETFs—an acknowledgement the currency is indeed a commodity. In response to an enquiry from Consensys, the SEC then informed the company it was "closing its investigation into Ethereum 2.0." The "2.0" phrase appears to be a reference to the blockchain's new proof-of-stake system that went into effect in 2022.

All of this came as good news to the market, and the price of Ethereum jumped around 3%. But one line in Consensys's announcement hinted that all was not quite as well as it seemed—namely that its lawsuit with the SEC was ongoing. This seemed strange given that, if Ethereum is not a security, the SEC has no jurisdiction and there is nothing to hash out in court.

I asked Consensys's lawyers what is going on and they told me the SEC is still going after MetaMask because it can be used to swap tokens on the DeFi market, and also because it offers access to staking—a key element of Ethereum that pays users to help secure the network. Here is how the lawyers put it:

"The SEC’s theory is that, because the Swaps offering allows users to trade various tokens using DeFi platforms, it is a securities broker due to at least some of those tokens being securities. They also assert that providing a user interface to two liquid staking protocols is also brokerage activity, and that it also constitutes offering unregistered crypto asset securities. The closing of the Ethereum 2.0 investigation doesn’t resolve those issues."

The SEC, in other words, is trying to argue that Consensys—and by extension other firms—is an unlicensed brokerage engaged in the securities trade. This is likely a losing argument too, but it's on brand for Gensler, who has treated the process of crypto regulation like a personal vendetta, to dig in to the bitter end. The upshot for the crypto industry is it has won another battle, but the war goes on.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

This story was originally featured on Fortune.com