Crypto lawyers are celebrating a recent decision by a U.S. judge to dismiss allegations against Coinbase Wallet, stating that it is a victory for self-custody wallets and decentralized finance (DeFi) apps.
On March 27, U.S. District Judge Katherine Failla denied Coinbase’s request to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC), ruling that the SEC had provided sufficient evidence that Coinbase was operating without a license and offering unregistered securities through its crypto staking service.
However, the judge also determined that the SEC had failed to prove that Coinbase conducted brokerage activity through Coinbase Wallet, its self-custody crypto wallet app that gives users full control of their assets.
Zach Rosenberg, the general counsel of Ethena Labs, described the decision as a significant win for browser-based wallet extensions and similar applications. He emphasized that Coinbase’s assistance to Wallet users in finding token prices does not mean that it is acting as a broker by providing recommendations or routing transactions.
The court’s ruling could potentially be used by DeFi app developers facing similar lawsuits to argue against allegations that they acted as unregistered brokers.
Marisa Tashman Coppel, the legal head of the Blockchain Association, expressed her satisfaction with the court’s decision, stating that it curbs the SEC’s overreach in relation to the allegations against Coinbase Wallet.
However, Mike Selig, a partner at law firm Willkie Farr & Gallagher, described the dismissal of the Coinbase Wallet case as a significant setback for the SEC.
Jake Chervinsky, the legal chief of crypto venture firm Variant, acknowledged that there were some positives in the judge’s order but ultimately believed that the SEC had won. He highlighted the court’s adoption of the SEC’s theory regarding the use of sale profits to reinvest in the token project’s ecosystem, which the court deemed a “common enterprise” where buyers could reasonably expect profits.
Chervinsky expressed disappointment with this outcome but noted that it is just the beginning of the SEC’s case against Coinbase and that the discovery phase will now commence, allowing both parties to gather evidence for their arguments.
The SEC initially filed a lawsuit against Coinbase in June of last year, alleging that the exchange had listed 13 tokens as securities without proper licensing and had operated as an unlicensed exchange and broker-dealer. Coinbase has denied these allegations.
In conclusion, it seems that the case against Coinbase is far from over, but the recent court decision has provided some hope for the future of self-custody wallets and DeFi apps.