Prometheum’s controversial response to crypto compliance is overdue

• Prometheum fell several weeks behind the date it said the company would open to cryptocurrency custody, and its CEO said the company is trying to complete the technology related to its wallet system before launch.

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

Much of the cryptocurrency industry is concerned about the ribbon-cutting on Prometheum’s custody and trading operations, which the firm says will fully comply with U.S. Securities and Exchange Commission (SEC) requirements. So far the doors have remained closed well beyond the expected date, but the company explained that it is still completing a process for verifying smart contracts.

“We expect completion soon and will thereafter move toward launching our custodial services for institutional clients,” Benjamin Kaplan, co-CEO of Prometheum Inc., said in a statement to CoinDesk.

Prometheum is a crypto-native startup that is the first to obtain specialized brokerage approval under SEC regulations and is now authorized to hold, trade and clear transactions in crypto securities. Its executives had initially said they would have a custodial operation in the first quarter of this year – a date now more than five weeks in the past. But Kaplan said the firm is “excited to be close to the public launch of its custodial 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 have finalized a rigorous smart contract audit process conducted by a leading audit firm.”

A spokesperson, who declined to name the audit firm, said Prometheum’s wallet system uses smart contract technology. He said solving this problem represents the only significant hurdle before opening.

Every week that Prometheum delays is another week that existing companies wait to find out whether a cryptocurrency custodian and brokerage can hold and trade tokens by treating them (including Ethereum’s leading ether asset {{ETH}}) as securities . So far, the SEC has not blocked the company’s progress through the filing chain, and SEC Chairman Gary Gensler even called his efforts a sign of progress.

Prometheum said it plans to provide custody of ether, the second-largest token by market share, and when asked what other tokens the company might handle, the spokesperson said the company has no other asset names yet to be announced.

The story continues

The broader cryptocurrency industry has been embroiled with the SEC in legal battles raging in several federal courts, in which digital asset exchanges and other companies insist the regulator is wrong about its position that most tokens are securities. Prometheum, the first company to obtain the special broker-dealer license, represents the contrary view that Gensler and his agency are right, and many industry insiders and their allies among Republican lawmakers have rebuked the company’s executives and accused Prometheum of being an SEC pet project. .

If Prometheum is right, it could become a live demonstration of Gensler’s view of cryptocurrencies as securities, which he says belong under the jurisdiction of existing U.S. securities laws and SEC oversight. Securities issuers must be registered with the agency and undergo a series of declarations and examinations, and the securities themselves must also be registered — requirements that many industry advocates say crypto firms and decentralized organizations would find impossible to meet.

Prometheum leaders say they intend to make it a one-stop shop where investors, institutional and retail, will one day be able to store their digital tokens, trade them on its alternative exchange system (ATS), and trade tokenized assets in the future.

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

“We cannot say anything about specific clients now, but as always Prometheum Capital plans to be used by all ranges of institutions requiring compliant access to digital asset securities, including institutional investors and traders, asset management firms, family offices , hedge funds, registered investment advisors (RIAs), banks and financial institutions,” the spokesperson explained.

The company had said its commercial operations — the highest-profile test of its business model — were expected to begin as early as the second quarter of 2024, though it’s unclear whether the custody delay will push that timeline as well.

Brothers Benjamin and Aaron Kaplan share leadership of the company. Co-CEO Aaron Kaplan will be in attendance at Consensus 2024 event at the end of the month.

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