Prometheum: What You Need to Know About the SEC’s Poster Child for Crypto Compliance

In the event you’d by no means heard of the crypto startup Prometheum earlier than this week, you’re removed from alone. And but, seemingly in a single day, the corporate has develop into the Securities and Change Fee’s poster baby for compliance—a shining instance of regulatory certainty for an business stuffed with “hucksters, fraudsters, and rip-off artists,” in accordance with SEC Chair Gary Gensler.

So what’s Prometheum and who’s behind it? Trade observers have been fast to solid aspersions on the startup, scrutinizing the viability and roots of its enterprise after the corporate’s co-CEO testified earlier than members of Congress on Tuesday.

Describing itself as a market ecosystem for digital asset securities, the agency says it’s the primary crypto-centric broker-dealer to register with the SEC whereas being a member of the Monetary Trade Regulatory Authority (FINRA)—and it’s bent on bridging conventional finance to crypto.

To that finish, the corporate’s founder and co-CEO Aaron Kaplan testified earlier than the Home Monetary Companies Committee on Tuesday, saying a path to compliance has been clearly laid out by the SEC.

Kaplan additionally pushed again towards new laws within the U.S. geared toward clarifying crypto, saying—counter to what many corporations within the SEC’s sights have expressed—that it’s not in the very best curiosity of the investing public and “those that argue for brand spanking new legal guidelines are merely not prepared to adjust to present relevant securities legal guidelines.”

His feedback provoked criticism from many members of the digital belongings business, who recommended that Prometheum, a comparatively unknown agency, obtained preferential therapy from regulators for parroting the SEC’s stance and mirroring statements made by Gensler, together with that crypto “laws truly exist already.” 

However Kaplan instructed Decrypt in an announcement that the agency’s newly attained regulatory standing was the product of exhausting work.

“Prometheum has been working for years to construct a compliant, regulated buying and selling platform for digital asset securities to offer traders the protections afforded beneath the federal securities legal guidelines,” he stated. “This is a crucial step ahead for the crypto business because it reveals there’s a regulatory pathway to acquire approval.” 

As Republican lawmakers proceed to hound America’s monetary watchdog and Gensler within the wake of enforcement actions towards Binance and Coinbase, Prometheum’s obvious success with regulators dovetails properly with Gensler’s repeated claims that noncompliance is a alternative. 

Talking on CNBC final week, SEC Chair Gary Gensler upheld Prometheum for instance of how digital asset corporations can are available and register regardless of what business gamers say, whereas additionally suggesting that the U.S. does not actually need cryptocurrency anyway.

“Now we have had success, even up to now two weeks,” Gensler stated. “A crypto entity filed as what’s known as a particular objective broker-dealer and got here into compliance that means.”

But, Kaplan caught flack from Rep. Mike Flood (R-NE) on Tuesday, who teased out in his questions through the listening to that Prometheum doesn’t presently permit clients to commerce Bitcoin and Ethereum. Kaplan stated that’s partly as a result of the agency is taking “a crawl-walk-run-approach.”

In Might, Prometheum declined to offer Bloomberg with a listing of belongings it intends to checklist on its platform, explaining that its choices shall be primarily based on inner selections as to what qualifies as a safety.

Pitchforks come for Prometheum

Since Kaplan gave his remarks on Capitol Hill on Tuesday, Crypto Twitter has been abuzz with customers attempting to determine how Prometheum turned crypto’s first Gensler-anointed agency, poring over the startup’s paper path and breaking down its enterprise mannequin—or lack thereof.

The dearth of belongings supported didn’t sit nicely with Rodrigo Seira, particular counsel on the crypto-focused funding agency Paradigm, who described Prometheum’s various buying and selling system as successfully a bicycle with no wheels. He identified on Twitter that Prometheum would solely be capable to facilitate the commerce of tokens from tasks that first register belongings with the SEC.

Seira’s assertion was included in a separate, in depth Twitter thread, the place Fortress Island Ventures’ Common Accomplice Matt Walsh raised different points with Prometheum, calling it the “strangest factor he’s seen” shortly.

Walsh went so far as to say that the SEC is utilizing Prometheum, a “fringe participant with no biz mannequin,” to attempt to persuade Democrats {that a} Republican-led market construction invoice on digital belongings must be opposed.

Adam Cochran, a accomplice at MetaCartel Ventures DAO, additionally penned an in depth thread centered on Prometheum. He pointed to a Bloomberg article in Might that stated Prometheum “hasn’t but gained approval for clearing and settling beneath [its] broker-dealer license,” which means clients can’t presently commerce digital belongings.

Cochran and Walsh each highlighted Prometheum’s connection to 2 China-affiliated corporations: Wanxiang and Community 1 Monetary Securities, to which Prometheum has paid over $1.5 million in gross sales commissions. They identified that Community 1 has additionally confronted regulatory actions up to now.

“Even a cursory look reveals that this isn’t somebody you must greenlight, particularly not as the primary within the house,” Cochran stated. “Crops, patsies, or opportunists—it’s unclear, however the truth Gensler is letting them run round with SEC approval is a pink flag.”

Cochran’s thread was picked up by Gemini co-founder Tyler Winklevoss, who added his two cents. He drew consideration to the truth that Prometheum hasn’t launched a product because it was based in 2017 and has employed a number of SEC and FINRA employees.

FINRA filings and New York

Prometheum’s SPBD and ATS registrations may be considered on BrokerCheck, a web site operated by FINRA that gives perception into the monetary corporations registered with the self-regulatory group.

Established in 2018, Prometheum’s ATS agency was accepted by the SEC in July of 2021, granting it the power to let “enter, transact, and match orders for digital asset securities” throughout 53 states and U.S. territories.

The scope of jurisdictions during which Prometheum is ready to function its SPBD enterprise is extra restricted. In line with FINRA, the agency is licensed to function in 15 totally different states, together with New York, identified for its stringent BitLicense regime that regulates digital asset corporations beneath the New York Division of Monetary Companies (NYDFS).

The corporate will not be presently listed as a registered digital foreign money enterprise on the NYDFS’s essential web page, although Prometheum’s essential workplaces are located on Wall Road and the corporate’s ATS and SBPD corporations are registered in New York.

Because the digital belongings business and Crypto Twitter preserve digging, Marisa Tashman Coppel, coverage counsel on the Blockchain Affiliation, ​​a crypto business advocacy group, stated on Thursday that Prometheum’s skill to register with the SEC appears suspicious.

She stated the Blockchain Affiliation made a request beneath the Freedom of Data Act, which grants the general public entry to authorities paperwork, looking for paperwork and communications from the SEC associated to Prometheum.

“Though it could take time to obtain paperwork, the regulation requires the SEC to reply to all FOIA requests,” Coppel stated. “Fingers crossed they comply right here.”