Prometheum, an alternative trading platform focusing on crypto securities assets, has recently unveiled its custodial services for Ethereum (ETH), sparking discussions about the legal status of the second-largest cryptocurrency.
According to Fortune Magazine, Prometheum aims to push regulators, particularly the Securities and Exchange Commission (SEC), to classify Ethereum as a security. The company, based in New York, asserts compliance with existing laws and received approval in 2021 to operate as an alternative trading platform for securities. Notably, it acquired a special-purpose broker-dealer licence from the Financial Industry Regulatory Authority (FINRA), enabling it to function as a broker-dealer in digital asset securities, a distinction unmatched by other firms. This has prompted calls for investigations into Prometheum’s operations from both crypto companies and members of the US Congress.
While the SEC has refrained from definitively categorising Ethereum as a security, Prometheum aligns with the SEC’s view that most cryptocurrencies fall under this classification. Prometheum argues that Ethereum could qualify as a security under an exemption known as Rule 144, typically used for trading restricted stocks, by leveraging blockchain data to ascertain the assets’ circulation for over a year, a key requirement for claiming the exemption.
Prometheum’s launch of Ethereum custodial services could potentially compel the SEC to make a definitive ruling on Ethereum’s legal status. Legal experts speculate that this decision could have profound implications for the crypto industry, challenging the prevailing notion that cryptocurrencies cannot operate under existing securities laws.
The SEC’s intensified enforcement efforts under Chair Gary Gensler, coupled with lawsuits against exchanges for non-registration, contrast with Prometheum’s compliance-driven approach. This has drawn criticism from both the crypto industry and Republican lawmakers, who accuse Gensler of favouring Prometheum to advance his regulatory agenda.
In essence, Prometheum’s introduction of Ethereum custodial services has reignited debates surrounding Ethereum’s legal classification, potentially prompting the SEC to make a decisive determination and challenging the crypto industry’s push for new regulations. The success of Prometheum’s strategy remains uncertain, and future responses from subsequent SEC administrations, as well as institutional investors’ reactions, will be closely watched.