The US crypto industry has complained loudly about a lack of regulatory clarity, but one company sees it differently. Digital asset platform Prometheum takes the contrarian view that there is already a clear legal path for cryptocurrency trading – a stance that has drawn the ire of others in the industry.
On Friday, the New York-based company put its theory to the test by launching its long-planned Ethereum custody services. The move is notable because Prometheum is doing this in a way that classifies the token as a security under the supervision of the Securities and Exchange Commission. The introduction of custody appears to validate the position of the authority’s chairman, Gary Gensler, who has countered the position of the broader crypto industry by saying the existing regulatory system is adequate and effective.
“It eliminates a lot of the arguments that things can’t be done under existing laws,” said Aaron Kaplan, the co-CEO of Prometheum Inc., the parent company of the company that is launching Ether custody. “It is the first time that … a digital asset security arising from an investment contract will be held and treated in accordance with securities laws.”
The bet
Founded by brothers Aaron and Benjamin Kaplan, Prometheum existed in relative obscurity before bursting onto the crypto scene in mid-2023 with the announcement that it had acquired a unique broker-dealer license that would allow companies to custody digital securities Asset securities.
While much of the blockchain industry argues that the vast majority of cryptocurrencies should not be treated as securities under the SEC’s jurisdiction, Prometheum made a novel alternative claim. The company argued that its special broker-dealer distinction — along with a license for a separate entity to operate an alternative trading platform — would allow it to offer cryptocurrency trading within existing SEC regulations.
Prometheum’s bet, as well as a controversial appearance by Aaron Kaplan at a House Financial Services Committee hearing on digital assets, drew withering criticism from industry leaders who argued that Prometheum’s approach would not work and that the company was incapable of producing products to bring to market or find customers.
For months, Prometheum refused to say which crypto assets it would treat as securities and offer on its platforms until it announced in February that it would soon make Ethereum available for custody. Although the launch does not represent the full trading offering, custody is a necessary first step in facilitating trading as customers need a place to store the assets they buy and sell. By operating both its custodian and trading system under separate entities with approval from the SEC and the Financial Industry Regulatory Authority (FINRA), an independent industry regulator, Prometheum claimed to have found a compliant path where competitors like Coinbase had failed.
Again, the announcement was met with heavy criticism, as crypto advocates feared that the launch would mean the SEC viewed Ether as a security – a position the agency has not yet taken but has repeatedly telegraphed, and which has far-reaching consequences for the SEC SEC would have sector. These concerns were heightened when the SEC issued a Wells notice against Ethereum developer Consensys in late April that appeared to confirm the industry’s fears.
However, Prometheum’s launch of Ether custody services was delayed beyond its March target – until Friday. Kaplan told Assets that Prometheum Inc., Prometheum’s broker-dealer licensed subsidiary, has soft-launched the product with a small group of companies and plans to fully launch custody services by the first week of June. Full trading, he said, will occur within a quarter. He declined to provide further details about the companies involved in the pilot.
After months of threatening to upend the crypto industry’s long-standing belief in the possibility of Ether trading under SEC guidance, Prometheum’s custody launch represents the first test of the company’s strategy.
“It took a little longer than we expected,” Kaplan said. “But we didn’t really have the option to do it any other way.”