Prometheum launches Ether custody service that treats ETH as a security: Report

The digital assets platform soft-launched its controversial Ethereum custody service on May 17 and is targeting a full launch next month.

Digital asset trading and custody firm Prometheum has reportedly soft-launched its controversial Ether (ETH) custody service, which treats digital assets as security.

According to a May 20 report from Fortune, the custody solution has been rolled out to a few select companies on May 17, with a full-scale launch expected to take place in June.

Prometheum is targeting its services toward asset management firms, hedge funds, banks and registered investment advisors and aims to expand to retail clients later in 2024.

Prometheum was thrust into the spotlight in June last year after its co-founder and co-CEO Aaron Kaplan testified before a United States House Committee, seemingly supportive of regulating crypto under current securities laws — a view which is also shared by the Securities and Exchange Commission.

In February, Prometheum suggested that it would treat Ether as a security when it launches custodial services on its platform later in the year — garnering criticism from the crypto community.

“It eliminates a lot of the arguments that things can’t be done under existing laws,” explained Aaron Kaplan, one of the firm’s CEOs.

“It marks the first time that…an investment contract digital asset security is being custodied and treated under the securities laws.”

Some initially saw the SEC’s nod for Prometheum and its treatment of Ether as a bad signal for spot Ether ETFs.

However, reports have since emerged that the SEC is asking applicants to accelerate their 19b-4 filings, which have raised hopes again.

It resulted in Bloomberg ETF analysts Eric Balchunas and James Seyffart raising their estimated odds of an approved spot Ether ETF from 25% to 75%.

Related: If SEC approves spot Ether ETFs, many ‘will be caught severely offside’

Brothers Aaron and Benjamin Kaplan founded Prometheum in 2017, which remained relatively unknown until June 2023, when it secured a broker-dealer license from the SEC and the Financial Industry Regulatory Authority.

However, Prometheum’s Ethereum custody service launch could now cause a rift between the SEC and the U.S. commodities regulator.

The Commodity Futures Trading Commission, which has long classified Ether as a commodity, warned in March that such a product would put U.S. financial market rules in direct conflict.

“It will then put our registrants, our exchanges who list Ether as a futures contract sort of in non-compliance of SEC rules as opposed to CFTC rules,” said CFTC Chair Rostin Behnam at the time.