Ripple CTO Uses Diamond Business Analogy To Support Consensys in SEC Lawsuit

• Ripple CTO David Schwartz shares his support for Consensys in the recent lawsuit filed by the SEC.
• Using an analogy of Diamond, Schwartz argues that MetaMask’s services are not concentrated on users’ profits.
• Schwartz also shares insights on the critical difference between investment contracts and business contracts.

Ripple’s Chief Technology Officer (CTO), David Schwartz, recently expressed his support for the crypto company Consensys in the lawsuit filed by the SEC against it. Using the diamond market as an analogy, Schwartz argued that MetaMask’s efforts are not profit-focused.

Schwartz’s arguments came in response to the Securities and Exchange Commission’s (SEC) recent lawsuit against Consensys. In the lawsuit filed in the U.S. District Court in Brooklyn, New York, the SEC alleged that Consensys has been operating as an unregistered broker and offering unregistered securities through its staking programs, MetaMask swaps service.

Many view the SEC’s move as retaliation to Consensys’ previous lawsuit, which questioned their effort to classify Ether as security. Though the SEC withdrew its investigations later, Consensys decided to continue its fight against the agency’s regulatory overreach.

In his arguments supporting Consensys, Schwartz cited the example of the luxury diamond company DeBeer. He stated that MetaMask’s activities do not determine the users’ profits, pointing out DeBeer’s activities, which are not profit-centric. He cited, “MetaMask’s efforts don’t determine your profits any more than DeBeer’s efforts determine the profits of people who hold diamonds.”

In addition, Schwartz shed light on the critical difference between business contracts and investment contracts. Elaborating on MetaMask’s regulatory compliance, Schwartz argued,

Sure. But nothing about that business contract determines the profit users get. MetaMask takes an agreed cut for providing services to the users. The source and amount of the profit they split is outside of MetaMask’s controls and not dependent on their efforts.

Schwartz further narrated the notion of an investment in connection with MetaMask, adding that MetaMask’s profits are only a result of external market conditions and user activities and not of Consensys’ efforts. Moreover, contrasting between token and security, he posited, “Tokens managed by smart contacts can’t make all holders a common enterprise.”