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Controversial blockchain company Prometheum launches long-awaited Ethereum custody
The US cryptocurrency industry has loudly complained about a lack of regulatory clarity, but one company sees it differently. The digital asset platform Prometheum has taken the contrary view that there already exists a clear legal path to trading cryptocurrencies, a position that has drawn the ire of other industry players.
On Friday, the New York-based company put his theory to the test by launching its long-planned Ethereum custody services. The move is notable because Prometheum is doing so in a way that classifies the token as a security supervised by the Securities and Exchange Commission. The launch of the case appears to validate the position of president of the agency Gary Genslerwhich countered the broader cryptocurrency industry position by stating that the existing regulatory regime is adequate and effective.
“It eliminates a lot of the arguments that things can’t be done under existing laws,” said Aaron Kaplan, co-CEO of Prometheum Inc., the parent company of the entity that launched Ether custody. “This is the first time that… a digital asset security of an investment contract has been held and processed under securities laws.”
The bet
Founded by brothers Aaron and Benjamin Kaplan, Prometheum existed in relative obscurity before bursting onto the cryptocurrency scene in mid-2023 with the announcement that it had obtained a first-of-its-kind broker-dealer license that would allow firms to store assets digital asset securities.
While much of the blockchain industry argues that the vast majority of cryptocurrencies should not be treated as securities under the jurisdiction of the SEC, Prometheum has made a new alternative claim. It argued that its distinction as a special purpose broker-dealer, along with a license for a separate entity to operate an alternative trading platform, would allow it to offer cryptocurrency trades under existing SEC regulations.
Prometheum’s bet, along with Aaron Kaplan’s controversial appearance at a House Financial Services Committee hearing on digital assets, drew fierce criticism from industry leaders, who argued that Prometheum’s approach would not worked and that she wouldn’t be able to launch products or find customers.
For months, Prometheum refused to name which crypto assets it would treat as securities and offer on its platforms, until February, when announced which would soon make Ethereum available for custody. While the launch does not constitute the entire trading offering, custody is a necessary first step to facilitate trading, as customers need to have a location to store the assets they buy and sell. By operating both the custodian and trading system under separate entities with approval from the SEC and the Financial Industry Regulatory Authority (FINRA), an independent industry oversight body, Prometheum said it has found a compliant path where competitors such as Coinbase I had failed.
Once again, the announcement was met with vitriol, with cryptocurrency advocates fearing that the launch would mean the SEC would view Ether as a security — a position the agency has not yet taken, but has repeatedly telegraphed, and which would have far-reaching consequences for the market. sector. Such concerns were exacerbated when the SEC released a Wells warning against Ethereum developer Consensys in late April seemed to confirm the fears of the sector.
Prometheum’s launch of Ether custody services, however, was delayed beyond its March target, until Friday. Kaplan told Fortune that Prometheum Inc., the Prometheum subsidiary that holds the broker-dealer license, launched the product with a small group of companies and planned to fully launch custody services by the first week of June. Full negotiation, he said, will occur within a quarter. He declined to provide further details on the companies included in the pilot project.
After months of threats to upend the cryptocurrency industry’s long-held belief that Ether can be traded under SEC guidance, Prometheum’s custody launch represents the first test of the company’s strategy.
“It took a little longer than expected,” Kaplan said. “But we didn’t really have the ability to do it a different way.”