In a move that could change the way that regulations apply in the cryptocurrency space, New York-based Prometheum has said that it is ready to announce plans for custodial services for Ethereum, the second-biggest digital currency globally. The development comes amid simmering tension between the innovators and regulators in the cryptocurrency world, with the U.S. Securities and Exchange Commission (SEC) among those at the center of it all.
According to a recent report, the strategic move made by Prometheum comes not only in providing custodial services but challenging the ambiguity by the SEC on legal classification with respect to Ethereum. The SEC has avoided defining Ethereum as a security, and plans by Prometheum could force the agency to confront this contentious issue head-on. Legal experts believe that the start of custody services could be what prompts the SEC to make a final call on what, precisely, Ethereum is—whether a security or not.
Prometheum’s leaders, the Kaplan brothers, took an unusual regulatory route. They got the Financial Industry Regulatory Authority’s (FINRA) permission to run as an alternative trading platform. This is a big switch from regular crypto exchanges like Coinbase and Kraken. Those have worked outside the usual financial rules. Still, Prometheum’s focus on following rules has brought them both applause and criticism in the crypto world.
Navigating Ethereum’s Regulatory Waters
The announcement emphasizes the effort moving towards gaining regulatory clarity on all fronts of the crypto space. SEC Chair Gary Gensler has been leaning into stronger enforcement of the rules as the industry ramps up to re-draw the lines on digital assets. Being open to collaboration with the regulators, Prometheum can then also help to drive a possible new regulatory evolution.
The Prometheum strategy is controversial, but it is believed that this approach by industry observers might make it the long-awaited solution for setting the legal status of Ethereum. While contentious about offering custodial services under FINRA and SEC supervision, Prometheum aspires to offer institutional investors a proper regulatory context.
Implications for Prometheum’s move go deeper than just regulatory compliance, ranging towards fundamentally changing the view of the compatibility of crypto and existing securities law. While skeptics believe the firm will struggle actually to execute on such a vision, others see value in fostering clarity and regulatory alignment within the nascent industry. Only time will tell whether this bold gambit forces the hand of the SEC and redefines Ethereum as a security.
