- Court dismissed SEC allegations that Coinbase’s self-custody Wallet app was an unregistered broker, which lawyers say limits SEC overreach into DeFi
- Ruling makes it harder for SEC to pursue similar brokerage allegations against DeFi developers, seen as a win for ecosystem
- Broader SEC lawsuit against Coinbase for operating unlicensed exchange continues, so legal fight with SEC is not over
A recent court ruling dismissing allegations against Coinbase’s self-custody Wallet app is being hailed as a significant win for decentralized finance (DeFi) applications.
Coinbase Wallet Not a Broker, Judge Rules
On March 27, US District Judge Katherine Failla denied Coinbase’s motion to dismiss an SEC lawsuit alleging it offered unregistered securities. However, she agreed with Coinbase that the SEC failed to sufficiently allege the company’s Wallet app, which gives users full control of their crypto, was acting as an unregistered broker.
Lawyers Say Ruling Limits SEC Overreach
Crypto lawyers argue this limits the SEC’s ability to make similar allegations against DeFi apps. “It’s not just that Coinbase won but the basis for it,” said Ethena Labs’ Zach Rosenberg, noting the court didn’t think Coinbase acted as a broker just by showing token prices in its Wallet app.
Positive Implications for DeFi Developers
By dismissing the brokerage allegations against Coinbase Wallet, lawyers say the ruling makes it harder for the SEC to pursue similar actions against DeFi app developers. “This is a pretty giant win for browser-based wallet extensions, application front ends and other similar applications,” said Rosenberg.
Some Caution Ruling Wasn’t a Total Win
However, some like crypto lawyer Jake Chervinsky argue the overall ruling wasn’t a total win for Coinbase. While dismissing the Wallet brokerage allegations was positive, Chervinsky says the judge sided with the SEC on other key issues like applying the Howey investment contract test to secondary market transactions.
Case Continues Into Discovery Phase
Though the judge dismissed allegations around Coinbase Wallet, the broader SEC lawsuit alleging Coinbase operated as an unlicensed exchange and broker will now proceed to the discovery phase. This means both sides will continue gathering evidence to support their arguments.
Conclusion
While Coinbase didn’t get the lawsuit thrown out entirely, the judge’s ruling on Coinbase Wallet is being seen as a significant blow to the SEC’s expansive view of its authority over crypto apps. By rejecting allegations that Coinbase Wallet acted as an unregistered broker, lawyers say the decision could make it harder for the SEC to go after DeFi projects on similar grounds. However, the SEC’s broader case against Coinbase continues, setting the stage for a prolonged legal battle.
