Controversial blockchain firm Promethium launches long-awaited Ethereum custody

The US crypto industry has complained loudly about a lack of regulatory clarity, but one firm sees it differently. Digital asset platform Prometheum has taken the contrarian view that a clear legal path to crypto trading already exists – a stance that has angered others in the industry.

On Friday, the New York-based company tested its theory by launching its long-planned custody services for Ethereum. The move is notable because Promethium is doing so in a way that classifies the token as a security under the supervision of the Securities and Exchange Commission. The custody launch appears to validate the position of agency chairman Gary Gensler, who has opposed the broader crypto industry’s position by calling the current regulatory regime 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 Promethium Inc., the parent company of the entity that launched ether custody. “This is the first time that… an investment contract digital asset security is being protected and treated under securities laws.”

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Founded by brothers Aaron and Benjamin Kaplan, Promethium existed in relative obscurity before bursting onto the crypto scene in mid-2023 with the announcement that it had received a first-of-its-kind broker-dealer license that will allow firms to own digital custody . Asset securities.

While much of the blockchain industry argues that most cryptocurrencies should not be treated as securities under the SEC’s jurisdiction, Promethium made a new alternative claim. It argued that its special-purpose broker-dealer distinction—along with the license of a separate entity to operate an alternative trading platform—would allow it to offer trading for cryptocurrencies under existing SEC regulations.

Promethium’s bet, along with Aaron Kaplan’s controversial appearance at a House Financial Services Committee hearing on digital assets, drew strong criticism from industry leaders, who argued that Promethium’s approach would not work, and that it would be difficult to launch or find products. Will not be able to. Customer.

For months, Promethium refused to disclose which crypto assets it would treat as securities and offer on its platforms until February, when it announced it would soon make Ethereum available for custody. While the launch does not constitute its full trading offering, custody is a necessary first step to facilitate trading, as clients need a place to hold the assets they buy and sell. By operating both the custodian and the trading system under separate entities with the approval of the SEC and the Financial Industry Regulatory Authority (FINRA), an independent industry oversight body, Promethium claimed it had found a compliance path where coinbases like Competitors had failed.

Again, the announcement was met with vitriol, with crypto advocates fearing that the launch would mean the SEC would view Ether as a security – a position the agency has not yet made, but repeatedly telegraphed. is, and it will have far-reaching consequences for the region. Those concerns were further heightened when the SEC issued a Wells Notice against Ethereum developer ConsenSys in late April, which seemed to confirm the industry’s fears.

However, the launch of Promethium’s ether custody services was delayed beyond the March target – until Friday. Kaplan said Luck Promethium Inc., a subsidiary of Promethium that holds a broker-dealer license, soft-launched the product with a small group of companies and plans to launch full custody services by the first week of June. Full commercialization will come within a quarter, he said. He declined to provide further details about the companies involved in the pilot.

Promethium’s custody launch represents the first test of the company’s strategy, after months of threatening to upend the crypto industry’s long-held belief about the possibility of trading ether under SEC guidance.

“It took a little longer than we expected,” Kaplan said. “But we really didn’t have a choice to do it differently.”

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