Lawyers for DeFi are ecstatic, while the SEC is experiencing a “major setback” due to a U.S. judge’s ruling that Coinbase is not a broker because of its self-custody crypto wallet.
Legal advocates for cryptocurrency are celebrating a recent US court ruling that upheld self-custody wallets and decentralized finance (DeFi) applications by dismissing claims against Coinbase Wallet.
After the SEC “sufficiently pled” that Coinbase was unlicensed and that its crypto staking offering was an unregistered security, U.S. District Judge Katherine Failla rejected Coinbase’s motion to dismiss the SEC’s complaint on March 27.
The court also found that the SEC could not prove that Coinbase engaged in brokerage activity using Coinbase Wallet, the company’s cryptocurrency wallet program that allows customers complete management over their holdings.
“[This] is a very significant gain for browser-based wallet extensions, application front ends, and other related apps,” said Zach Rosenberg, general counsel of Ethena Labs, in a post on March 27th on X.
Coinbase’s victory is important, but the foundation for that victory is much more so, Rosenberg said. Token pricing assistance from Coinbase’s Wallet is not the same as the company acting as a broker by “routing or providing suggestions,” he said.
In a similar case, the makers of the DeFi app might use the court order to refute claims that they operated as an unlicensed broker.
According to Blockchain Association president and industry advocate Marisa Tashman Coppel, who expressed her satisfaction with the court’s decision to limit the SEC’s extensive actions in relation to the Coinbase Wallet accusations, the industry is “very delighted.”
Mike Selig, a lawyer at the law firm Willkie Farr & Gallagher, called the SEC’s decision to fire Coinbase Wallet a “major setback” in an X post.
In an effort to deter developers from creating P2P software, the SEC made its intentions clear. Was ineffective.
Although the judge’s ruling had “some advantages,” the chief legal officer of crypto venture capital company Variant, Jake Chervinsky, said that “generally, the SEC wins.”
He praised DeFi for Wallet’s lack of a broker and noted that there was appropriate wording about other matters. “However, on a number of crucial points, the court sided with the SEC—incorrectly, in my view.”
Additionally, he said that the court agreed with the SEC’s view that a token project that reinvests its earnings into its ecosystem qualifies as a security since it is a “common venture” from which purchasers might reasonably anticipate returns.
Chervinsky expressed his disappointment with the decision. “However, the SEC’s case against Coinbase, in particular, is only starting, not concluding.”
Coinbase and the SEC will now enter discovery, the phase of litigation where they will gather evidence to support their respective positions.
In June of last year, the SEC first sued Coinbase, claiming that the exchange featured thirteen coins that the agency considered securities and that it operated without a license to exchange or broker-deal. Coinbase has always denied these claims.
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