Prometheum soft-launches ether custody services, treating it as a security

Controversial digital asset firm Prometheum Capital has soft-launched ether custody services in a way that treats ether as a security under the supervision of the U.S. Securities and Exchange Commission. 

Prometheum originally planned on offering the service in the first quarter of 2024, having selected ether as the first digital asset for its crypto custodial services in February. However, it soft-launched the product with an unnamed small group of companies on Friday and intends to fully launch custody services in June, Fortune first reported on Monday, confirmed by The Block. Prometheum co-CEO Aaron Kaplan reportedly told the outlet that trading services would begin within a quarter.

“It eliminates a lot of the arguments that things can’t be done under existing laws,” Kaplan told Fortune. “It marks the first time that…an investment contract digital asset security is being custodied and treated under the securities laws.”

Institutional clients such as asset management firms, hedge funds, banks and registered investment advisors are among the firm’s target customers. It also intends to expand services to retail clients in 2024, The Block previously reported.

The Financial Industry Regulatory Authority (FINRA) allowed the firm to provide crypto clearing and settlement services via a special purpose broker-dealer license in December. The SEC gave Prometheum that license in May 2023.

Prometheum's controversial stance on crypto

After obtaining its license from the SEC, Prometheum quickly drew the ire of the blockchain industry, the majority of which suggests cryptocurrencies should not be treated as securities, taking the contrarian view that a clear legal path for crypto in the U.S. already exists by operating custodial and trading services under separate entities with approval from the SEC and FINRA.

Prometheum's move comes as the SEC has consistently warned that crypto exchanges need to register with the agency. Over the past year, it charged Coinbase, Binance and Kraken for allegedly operating as unregistered exchanges, brokers, dealers and clearinghouses. Meanwhile, crypto firms have argued it's not possible to register with the agency.

SEC Chair Gary Gensler has hinted that ether could be a security while Commodity Futures Trading Commission Chair Rostin Behnam has said it would be a commodity, causing some confusion in the industry. Prometheum's foray into ether could force the SEC to make a decision, Fortune previously reported.

In March, Republicans led by House Financial Services Committee Chair Patrick McHenry (R-N.C.) and House Agriculture Committee Glenn Thompson (R-PA) said the SEC must first decide if ether is a security for Prometheum to custody it.

Last week, a newly-unearthed filing showed the SEC was potentially considering ether a security in likely spot Ethereum ETF denials this week, exacerbating concerns after the SEC issued a Wells notice against Ethereum ecosystem developer Consensys in April.