Could Prometheum become the SEC’s crypto darling?

In 2023, the Securities and Exchange Commission (SEC) rode into crypto’s Wild West like a new sheriff in town—and the crackdown was swift and harsh. The regulatory body has brought lawsuits against major cryptocurrency coins like Ripple, crypto traders like Genesis and Gemini, and perhaps most earth-shakingly, crypto giants Binance and Coinbase—the world’s two biggest crypto exchanges, with Binance alone capturing over 60% of the market share for such platforms.

The SEC charged Binance and Coinbase with the crime of operating unregistered securities exchanges, as they offer trading for cryptocurrencies like Binance USD, Solana, Cardano, and Polygon, which have been deemed to be securities per the agency.

But one upstart crypto exchange, Prometheum, is viewing the crackdown as a golden opportunity to become a new breed of crypto company, one that can survive the regulatory bloodshed—an SEC darling.

“Who the hell are these Prometheum guys?”

Many in the crypto community first heard of Prometheum in early June, when its cofounder, Aaron Kaplan, was squeezed last-minute into the witness list for a Congressional hearing, and used his time on Capitol Hill to gush that the SEC was “the most capable financial-markets regulatory agency in the world” and that its frameworks have “clearly laid out a compliant path forward for crypto in the United States.”

His comments ruffled feathers in the industry, as many companies suffering under the SEC’s crackdown were accusing the agency of overzealously enforcing ambiguous rules.

The controversy shot the once-obscure firm into sudden notoriety. Founded by Kaplan and his brother, Benjamin, in 2017, the Wall Street-based Prometheum claims to “bring together a blockchain-powered platform with the benefits of a securities-regulated marketplace,” including “guardrails and investor protections afforded by securities laws,” according to its website.

In May, it became the first crypto firm to be approved as a “special purpose broker-dealer” for digital assets by the Financial Industry Regulatory Authority. Since October, it has been approved as an “alternative trading system” by the SEC, thus carrying a lighter burden of oversight by regulators than a national exchange.

Such licenses mean Prometheum can trade tokens that are internally deemed to be securities—and only those tokens. According to Kaplan, that excludes the two biggest cryptocurrencies, Bitcoin and Ethereum, which are deemed to be more commodities-like. The platform will trade Filecoin and Flow, among others.

“The strangest thing I’ve seen in a while”

As Kaplan’s testimony irked the cryptoverse, Twitter and Discord users embarked on a quest to discover how, exactly, an obscure firm with just 50 employees, and zero digital-asset-trading revenue to date, won SEC licenses that even the buzzy stock platform, Robinhood, failed to score. Online sleuths inspected Prometheum’s paper trail.

“Who the hell are these Prometheum guys?” Ethereum cofounder Charles Hoskinson wrote. Some noted that Prometheum had won a seat before Congress, despite Kaplan having a law degree from a school that was stripped of its national accreditation by the American Bar Association, due to concerns over its quality of academics—and then, Prometheum seemed to conveniently parrot SEC chair Gary Gensler’s talking points on crypto regulation.

Kaplan, for his part, has said he was invited to Capitol Hill by Representative Maxine Waters.

But more damningly, venture capitalist Matt Walsh posted a Twitter thread examining Prometheum’s ties to China. It is almost 20% owned by Chinese crypto firm HashKey, and has also paid over $1.5 million in sales commissions to another China-affliated firm, Network 1 Financial Securities, which has faced regulatory action in the past.

Kaplan said on Capitol Hill this month that HashKey and its parent, Shanghai Wanxiang Blockchain, have no access to Prometheum’s data and technology. While Prometheum’s board includes an executive from HashKey, Xiao Feng, he is reportedly set to resign.

According to Prometheum, the SEC investigated its China ties in 2021, and closed the probe with no action.

Even as some of the crypto community have called Prometheum’s narrative “bizarre”—”the strangest thing seen in a while in this industry”—others have defended the company, arguing that it should be given a chance to show what it can do. Meanwhile, the Blockchain Association, a trade group, has filed a Freedom of Information Act request for more background.

The discourse has become more fuel for the flame war raging between crypto’s lawless land and the officials that seek to bring order to it. And with the stakes higher than ever, Prometheum could either blaze the frontier or simply burn up—the latest casualty in an unforgiving landscape.