Consensys urges SEC to exempt self-custody wallets, citing regulatory gap for 99% of tokens

MetaMask developer Consensys submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) on May 11, requesting an exemption for self-custody wallet providers from registration requirements and arguing that recent agency guidance has created a regulatory gap. The SEC's Division of Trading and Markets recently issued a staff statement clarifying that self-custody platforms used for trading crypto securities do not need to register as broker-dealers. However, separate interpretive guidance states that while most crypto assets are not securities themselves, they are treated as securities transactions if an investment contract is attached. The staff statement did not address the registration obligations for platforms that handle these non-security assets with attached investment contracts. Bill Hughes, Director of Global Regulatory Matters at Consensys, stated on X that this gap affects effectively 99% of all tokens. He emphasized that the concept of an attached or detached investment contract is unprecedented and that the underlying Howey legal doctrine is not well-defined for secondary market transactions. Hughes argued it is practically impossible for wallet providers to continuously determine the status of thousands of tokens. He also warned that the current guidance could result in ceding the market to overseas competitors. The proposed exemption would apply to platforms where users initiate and sign transactions themselves, provided the platform provider is not involved in asset custody or influencing trading decisions.