Prometheum’s Contentious Answer to Crypto Compliance Is Running Late

Prometheum is several weeks behind when it said the business would open for crypto custody, and its CEO said the company was trying to finish technology related to its wallet system before launch.

The firm said it will begin holding crypto securities for clients before commencing trading operations.

Much of the crypto industry is concerned about the ribbon-cutting on Prometheum’s custody and trading operations, which it says will fully comply with the demands of the U.S. Securities and Exchange Commission (SEC). The doors have remained closed well beyond the target date so far, but the company has announced that it is still finishing the process of auditing smart contracts.

“We expect completion soon and will be moving towards the imminent launch of our custody services for institutional clients,” Benjamin Kaplan, co-CEO of Prometheum Inc., told CoinDesk.

Prometheum is the first crypto-native startup to receive special purpose broker dealer approval under SEC regulations and is now licensed to operate, trade and exchange crypto securities. Its executives had initially said they would launch a custody operation in the first quarter of this year; More than five weeks have passed since this date. But Kaplan said the firm is “excited to be approaching the public launch of its custody services for institutional clients.”

“Building proprietary technology subject to federal securities laws requires us to meet the high standards set by our regulators and expected by our customers,” he said. “We are about to complete a rigorous smart contract audit process conducted by a leading auditing firm.”

A spokesperson who declined to name the auditing firm said Prometheum’s wallet system uses smart contract technology. The only significant delay before opening was to fix that situation, he said.

Every week that Prometheum delays is another week that existing businesses wait to find out whether a crypto custodian and broker-dealer can hold and trade tokens, treating Ethereum’s ether (including the significant asset {ETH}} as a security. So far, the SEC has not blocked the company’s progress through the registration chain, and SEC Chairman Gary Gensler even called its efforts a sign of progress.

Prometheum said it plans to hold Ethereum, the second-largest token by market share, and when asked what other tokens the company might use, the spokesperson said the firm had no other asset names to announce yet.

The story continues

The broader crypto industry has been embroiled in ongoing legal battles with the SEC in various federal courts, in which digital asset exchanges and other companies insist the regulator is wrong about its stance that most tokens are securities. Prometheum, the first firm to receive a private broker-dealer license, represents the opposing view that Gensler and his agency were right, and many industry insiders and their allies among Republican lawmakers have blasted the company’s executives and accused Prometheum of being the SEC’s pet project. .

If Prometheum is correct, this could be a vivid illustration of Gensler’s view of cryptocurrencies as securities that he claims are under the jurisdiction of current U.S. securities law and SEC oversight. Issuers of securities must be registered with the agency and undergo a series of disclosures and reviews, and the securities themselves must also be registered; these are requirements that many industry advocates say are impossible for crypto companies and decentralized organizations to meet.

Prometheum’s leaders say they aim to be a one-stop shop where institutional and retail investors can one day hold their digital tokens, trade them on an alternative trading system (ATS), and engage with the future of tokenized assets.

It is not yet clear who the company’s first customers will be.

“We cannot say anything about specific customers at this time, but as always, Prometheum Capital expects it to be used by all institutions that require compliant access to digital asset securities, including institutional investors and traders, asset management firms, family offices, hedge funds, registered investments advisors (RIAs), banks and financial institutions, according to the spokesperson.

The company had said the trading operation, a higher-profile test of its business model, should begin in the second quarter of 2024, but it’s unclear whether the retention delay will push that timeline as well.

Brothers Benjamin and Aaron Kaplan share leadership of the company. Co-CEO Aaron Kaplan will attend the Consensus 2024 event later this month.