Consensys has taken legal action against the U.S. Securities and Exchange Commission (SEC).

The lawsuit, filed on Thursday, aims to stop an impending SEC crackdown on Consensys’ MetaMask wallet and seeks a crucial ruling on the classification of Ethereum’s native token, Ether.

Consensys Challenges SEC’s Stance

The filing asserted, “The U.S. Securities and Exchange Commission’s (SEC) threatened regulation of Ether as a security would jeopardize the United States’ ability to use Ethereum and similar blockchain technology.”

Consensys is pushing for a federal court declaration affirming that Ether is not a security. It argues that any investigation based on ETH being a security would violate the company’s Fifth Amendment rights and the Administrative Procedures Act.

The lawsuit also seeks to clarify that MetaMask, Consensys’ wallet product, does not function as a broker under federal law, and its staking service does not break securities laws.

Consensys received a Wells notice from the SEC on April 10, indicating the SEC’s intent to pursue enforcement action against the company for alleged violations of securities laws through its MetaMask wallet product. The complaint also references the SEC’s prior stance on Ethereum, citing former director Bill Hinman’s 2018 speech, which classified Ether as a commodity.

Consensys highlights the SEC’s inconsistency in its approach and points to the Commodities Futures Trading Commission’s (CFTC) jurisdiction over Ethereum derivatives as further evidence of ETH’s commodity status.

It alleges that this shift constitutes an “about-face” that contradicts the Constitutional requirement of fair notice under the Due Process Clause.

Consensys also invokes the “major questions doctrine,” a legal principle that limits federal regulators from overstepping their Congressional mandates. The company warns of serious consequences for both the Ethereum network and Consensys should the SEC’s actions proceed unchecked.

Gensler’s Crypto Crackdown

The lawsuit against the agency comes amid SEC Chairman Gary Gensler’s aggressive crackdown on major crypto players, such as Coinbase and Uniswap.

Gensler’s approach has included issuing subpoenas to firms and developers for documents related to their interactions with the Ethereum Foundation, a nonprofit supporting the network’s development.

Critics within the crypto industry are angered by Gensler’s tactics. They argue that the SEC has not provided clear regulatory guidelines tailored to blockchain technology’s unique characteristics. Gensler denies these criticisms, asserting that existing securities laws are sufficient and blaming the crypto industry for non-compliance.

Consensys’ lawsuit, filed in the Northern District of Texas, aligns with similar preemptive legal actions taken by groups like the Blockchain Association and companies like Legit Exchange. Despite these legal actions, Gensler continues to pursue Ethereum’s staking feature as the basis for the SEC’s recent legal stance.

Crypto privacy protocol Railgun has denied accusations that it is being used by North Korea and other United States-sanctioned entities to launder digital assets.

This development comes as the crypto privacy protocol nears $1B total volume.

Railgun Denies Lazarus Group Association

Responding to claims made by crypto reporter Colin Wu through an X post, Railgun denied allegations linking it to the North Korean hacker group Lazarus Group.

“The North Korean hacker group Lazarus Group is also a user of the coin mixer Railgun,” the post stated. “Railgun is seen as the main alternative to Tornado Cash after the sanctions were imposed on it,” the team added.

Wu’s post referenced an FBI statement from January 2023 that accused Railgun of being used to launder over $60 million worth of Ethereum stolen during the 2022 Harmony Bridge heist.

RAILGUN protocol: “Any suggestion that sanctioned individuals, governments, or entities such as North Korea have used RAILGUN have no evidence & are based only on speculation.” From 2023, all RAILGUN transactions go through a Private Proofs of Innocence check which verifies that…

— Wu Blockchain (@WuBlockchain) April 16, 2024

“This is not true, and it’s false reporting,” Railgun stated. The team affirmed that the Lazarus group can’t access the Railgun system due to its ‘Private Proofs of Innocence’ system, which became operational over a year ago. Railgun also dismissed the accusation as a mistaken and false claim.

This development comes amidst a surge in Railgun’s total volume, which is about to break the $1 billion mark. Data from Dune Analytics reveals that Railgun has reached $962.81 million in total volume, with its total value locked on Ethereum surpassing $25 million.

Buterin’s Endorsement of Railgun

The protocol’s rise in popularity has been further propelled by an endorsement from Ethereum co-founder Vitalik Buterin, who recently defended it while praising its privacy features.

“Privacy is normal,” Buterin affirmed. “Railgun uses the privacy pools protocol, which makes it much harder for bad actors to join the pool without compromising users’ privacy.”

Meanwhile, Buterin has transferred 100 ETH (approximately $325,000) to Railgun within the last two days, according to data from Arkham Intelligence. Over the past six months, he has engaged with Railgun several times, regularly interacting with the platform using small amounts of ETH each month.

Railgun, established in January 2021, leverages zero-knowledge cryptography to shield wallet balances, transaction history, and transaction details. This allows customers to use decentralized apps (DApps) while safeguarding their privacy.

The introduction of Private Proofs of Innocence in January 2023 has increased Railgun’s security measures as it now uses cryptographic assurance to verify the legitimacy of funds entering its smart contract.