DEF Submits Another Response re. IRS's "Broker" Rule; SEC Concludes Investigation into Consensys

DEF Submits Another Response re. IRS’s Proposed “Broker” Rule

What happened? 

On Friday, DEF submitted a comment letter in response to the IRS's proposed information collection under their proposed broker rule from August of last year. We argue that if finalized in their current form, the proposed regulations would prevent the IRS from adhering to its information collection obligations under the Paperwork Reduction Act (PRA). 

What does this mean? 

For more information on the details of our response, check out DEF Policy Associate Lizandro Pieper’s thread on the matter. 

SEC Concludes Investigation into Consensys 

What happened? 

Last week, the Securities and Exchange Commission (SEC) sent a letter to Consensys, a major DeFi developer, formally concluding its investigation into Ethereum 2.0 regarding potential securities violations. The letter was in reply to Consensys’ June 7 request for information on the status of the investigation after the approval of the Ethereum spot ETPs in May.

In April 2024, Consensys sued the SEC seeking, among other things, a declaration that “ether is not a security,” that any SEC’s investigation into ether and Ethereum is beyond its statutory authority, that “Consensys neither acts as a broker nor offers or sells securities through the Swaps and Staking functionality of its MetaMask wallet software” and any enforcement action against Consensys premised on those concepts would exceed the SEC’s authority. Consensys argued that “the SEC is attempting to unlawfully regulate Ether through ad hoc enforcement actions against Consensys and possibly others -- the latest examples of aggressive and unlawful SEC overreach.” 

After the approval of the Ethereum spot-ETPs in May, many interpreted the decision as an indication that the SEC had decided that Ethereum was not a security. On June 7, Consensys wrote a letter to the SEC requesting information on the status of their investigation. In response, on June 13, the SEC notified Consensys “that it is closing its investigation into Ethereum 2.0 and will not pursue an enforcement action against Consensys.”  After receiving the letter, Consensys founder Joe Lubin posted on X, “While we welcome this development - it's not enough. We must remain vigilant and continue advocating for clear and fair regulations that enable innovation to flourish.” Accordingly, Consensys announced it will continue to push forward with their lawsuit.

What does this mean? 

While many have long speculated that the SEC is unlikely to pursue charges on the basis that sales of Ether are unregistered securities transactions, the SEC letter to Consensys was the most concrete SEC statement received to date on its view of Ethereum, other than the ETF approvals. It’s important to keep in mind that nothing in the letter specifically exempted Ethereum from securities laws, and the letter was issued under guidelines in the Securities Act which state that it “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.” Ultimately, the discussion about the SEC’s tone change regarding Ethereum and the potential classification of ETH as a commodity rather than a security will continue.