Prometheum is trying to chart a new path as an SEC-compliant cryptocurrency company, starting with a custodian operation that plans to start its business by holding customers’ ETH.
Company executives say the firm will pursue a number of other tokens before launching its trading operations, aiming to open its doors in the second quarter of 2024.
Prometheum Inc., still the only crypto securities platform registered in the United States, has revealed that the first digital asset it will manage for clients will be Ethereum ether (ETH).
The company, which has been the subject of industry criticism and debate, has yet to make any revenue after only very recently cleared the final regulatory hurdle to start the custodial operation. But co-CEOs Aaron and Benjamin Kaplan said they will take custody of clients’ ETH by the end of next month.
“We want to be able to serve the highest market cap and the most liquid token,” Aaron Kaplan said in an interview with CoinDesk. “Ethereum is the first, and then there should be many more.”
Prometheum represents a high-risk testbed for US cryptocurrencies. It is the first company to attempt to overcome all compliance hurdles of the United States Securities and Exchange Commission to establish itself as a specialized broker-dealer and custodian of cryptocurrencies through the Financial Industry Regulatory Authority. And in the next quarter, Prometheum executives said they plan to open the doors of their alternative trading system – a sort of U.S. trading venue similar to a full-fledged exchange but with fewer compliance requirements.
At that point, the company will prove its executives’ claims that cryptocurrencies can be operated in the United States to please the securities guarantor, or it will demonstrate the naysayers who argue that it is impossible to meet the SEC’s expectations. The stakes are not only high for Prometheum and the rest of the industry, but also for the government agency that has argued for years that there is a correct way for crypto firms to “come in and register” to do business in the United States; Prometheum has arrived and signed up but what happens next is unclear. And while it tests these murky waters, it could also help determine whether the SEC intends to treat ETH as a security.
Prometheum’s choice of ETH as an opening asset could come with its own complications. Unlike bitcoin (BTC), which the SEC has openly declared is not a security and therefore does not fall within the agency’s business, the commission has been more coy in deciding whether ETH is among the digital tokens that should be considered securities that fall under its jurisdiction. . Its sister agency, the Commodity Futures Trading Commission, has not been so shy in declaring that ETH is definitely a commodity.
Prometheum is registered to hold crypto securities and does not operate in the commodities sector. Ben Kaplan said the firm will follow whatever the SEC’s word is on ETH.
“The CFTC is not our regulator,” he said. “When the SEC tells us, ‘It’s not a security,’ then we’re going to be concerned.”
The startup, which Aaron Kaplan said has about 50 employees, sees “immense interest” in its service as a so-called “qualified custodian,” although it has not yet confirmed any institutional names that may do business there. It intends to provide services to asset managers, hedge funds, investment advisors, banks and other financial institutions.
“A lot of people got burned in 2022,” he said, referring to the turmoil affecting the underregulated U.S. industry.
Prometheum could have a huge opportunity if the SEC moves forward with a proposed rule to require that only registered investment advisors be allowed to park their clients’ crypto assets with qualified custodians. That list typically includes registered broker-dealers and banks, but SEC Chairman Gary Gensler likely supported it does not include today’s major cryptocurrency exchanges. The rule is on the agency’s public agenda and is expected to be finalized by April, although such agendas often prove overly ambitious.
Whether the SEC adopts the rule or not, Aaron Kaplan argues that traditional financial firms will want to deal with a service that is properly registered and “speaks the same language of compliance.”
He argued that the company could also benefit from the trend toward asset tokenization, because such a practice requires a company that can trade, liquidate and establish itself in one place.
The outcome of Prometheum’s business plan and whether the SEC will remain silent or try to intervene is not the only uncertainty facing the company. As with the rest of the industry, its future may be driven by ongoing court cases that promise answers about how crypto stocks will be defined.
If the courts side with Coinbase’s recent arguments in its case with the SEC that cryptocurrencies traded on a secondary market do not carry explicit contracts and are not securities, such a decision could affect the universe of securities that Prometheum can host on its platform.
To know more: Prometheum gets final regulatory approval to try its hand at fully compliant cryptocurrencies
