Prometheum’s Contentious Answer to Crypto Compliance Is Running Late

As an experienced financial analyst, I’ve closely followed the developments in the crypto industry, especially those related to regulatory compliance and custody solutions. Prometheum, a crypto-native startup aiming to provide institutional-grade custody and trading services for digital assets, has recently encountered some delays in its business launch.

Many in the cryptocurrency community have expressed concern about the launch of Prometheum’s custody and trading services, which the company assured will adhere to the regulations set by the U.S. Securities and Exchange Commission (SEC). However, these operations have yet to begin, with the opening delayed beyond the initial deadline. The reason given was that Prometheum is still undergoing an extensive audit of its smart contracts.

“I, Benjamin Kaplan, co-CEO of Prometheum Inc., anticipate wrapping up soon and subsequently introducing our custodial services for institutional clients right away.”

Prometheum, a pioneering crypto startup, has secured the first special-purpose broker dealer license under SEC regulations, enabling it to manage, buy and sell, as well as clear transactions involving crypto securities. Originally planned for Q1 this year, the launch of their custodial services for institutional clients is now close at hand, according to Kaplan’s announcement.

“To create our own technology that falls under the jurisdiction of federal securities regulations, we must adhere to the stringent requirements set by regulatory bodies and our clients’ expectations,” he explained. “We have been working with a renowned auditing firm to thoroughly examine and refine our smart contracts.”

An unidentified representative stated that Prometheum’s digital wallet employs advanced smart-contract technology. They mentioned that resolving any related issues is currently the major obstacle preventing their launch.

Prometheum has declared its intention to offer custody services for ethereum, which is the second most valuable cryptocurrency in terms of market capitalization. When queried about which other tokens the company might manage, the spokesperson replied that as of now, they haven’t disclosed any additional asset names.

In recent developments, the broader crypto sector has found itself entangled in legal disputes with the Securities and Exchange Commission (SEC), spanning multiple federal courts. Digital asset exchanges and related businesses are challenging the SEC’s stance that most tokens should be classified as securities. Prometheum, the first company to secure a special broker-dealer license, argues in favor of the SEC’s viewpoint. However, this position has drawn criticism from industry professionals and their political allies among Republican lawmakers who label Prometheum as an SEC favorite.

As a financial analyst, I’d put it this way: If Prometheum’s interpretation is on target, then this situation could serve as a tangible illustration of Chairman Gensler’s stance on cryptocurrencies being considered securities subject to U.S. securities laws and SEC supervision. In essence, issuers of such securities must register with the agency and comply with extensive disclosures and examinations, as well as register the securities themselves. Critics in the crypto industry argue that these requirements would pose significant challenges for many companies and decentralized organizations in the sector.

The leadership at Prometheum plans for it to serve as a comprehensive platform, allowing investors – both institutional and individual – to store their digital tokens, execute trades through its alternative trading system (ATS), and engage in transactions involving the upcoming market for tokenized assets.

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

The spokesperson from Prometheum Capital declined to discuss particular clients at this time. however, they anticipate that their platform will continue to be employed by a diverse group of users seeking regulated access to digital asset securities. This includes institutions such as institutional investors and traders, asset management firms, family offices, hedge funds, RIAs, banks, and financial institutions.

The company’s trading operation, which is a significant part of its business model, was expected to begin in the second quarter of 2024. However, due to the custodial delay, it’s uncertain if this schedule will be pushed back as well.

The company’s co-CEOs, Benjamin and Aaron Kaplan, share the role of leading the organization. This month, Aaron Kaplan is scheduled to attend the Consensus 2024 conference.