Victory for DeFi: crypto wallet Coinbase defeats SEC in court

Crypto lawyers are applauding a US judge's latest decision to dismiss charges against crypto wallet Coinbase Wallet, seeing it as a victory for self-custody wallets and decentralized finance applications (DeFi).

Main points from the court decision:
A judge dismissed SEC charges against Coinbase Wallet.
The judge did not accept Coinbase's motion to dismiss the SEC's lawsuit, finding that the SEC reasonably alleged that Coinbase engaged in unregistered sales of securities through its staking program.
The court's decision raises questions regarding the authority of the SEC and Coinbase's due process rights and the application of the Howey test* to crypto assets.
The court rejected Coinbase's concerns about the SEC's failure to develop rules regarding cryptoassets as securities, arguing that the SEC was applying an existing standard from classical finance rather than creating a new one.
A statement linking the purchase of tokens on exchanges to the underlying token ecosystem could have troubling implications for US cryptocurrency exchanges.
*The Howey Test is a test used by the US government to determine whether an asset is a security or not. If an asset is a security under the Howey test, it is subject to certain disclosure and registration requirements.
The judge ruled against the SEC's claim that Coinbase operates as a brokerage through its cryptocurrency wallet, Coinbase Wallet, which gives users complete control over their assets.

The SEC first sued Coinbase last June, alleging it listed 13 tokens that the regulator deemed securities and acted as an unlicensed exchange and broker-dealer, which Coinbase denies.
Opinion of the crypto community
“This is a very important win for browser-based wallets and other similar services,” said Zach Rosenberg, general counsel of Ethena Labs, in a March 27 statement.
Rosenberg emphasized that the significance of this victory is not limited to the success of Coinbase: it is a precedent for everyone in the crypto world. He clarified that the assistance Coinbase provides to wallet users regarding token prices does not imply that the company is acting as a broker, guiding or making recommendations.
The court's ruling could be used by DeFi app developers facing similar lawsuits to refute allegations that they acted as unregistered brokers.
Blockchain Association Chief Legal Officer Marisa Tushman Koppel said she was "very pleased to see the court curb the SEC's massive overreach in the Coinbase Wallet case.”
Law firm Willkie Farr & Gallagher partner Mike Selig said in a post on X that the failure of the Coinbase wallet case was a "significant setback" for the SEC.
However, there are also opposing opinions. Jake Czerwinski, head of legal at cryptocurrency company Variant, said that while there were some positive aspects to the judge's ruling, overall the SEC was a winner.
"It's good for DeFi that the Coinbase wallet is not a broker and there is good language on other issues. But the court sided with the SEC (wrongly in my opinion) on several key issues," he said.
Chervinsky explained that Judge Failla said the Howey test - the legal basis for classifying securities - applies to "purely secondary market transactions" and ignores the "contract" in an "investment contract."

He said the court also accepted the SEC's theory that a project that uses profits from token sales to reinvest in its ecosystem is a "common enterprise" where buyers have a reasonable expectation of profit, making it a security.
"This is a disappointing result," Czerwinski said. "But this is just the beginning, not the end, of the SEC's case against Coinbase.”
Now the case will move into the public stage - with Coinbase and the SEC collecting evidence for their arguments.
AML Crypto opinion
As we see, the opinion of the crypto community regarding the impact of this news on the blockchain as a whole was divided, but still the majority reacted with enthusiasm. The SEC has been on the receiving end of various attacks from DeFi representatives lately, but the current (albeit temporary) victory of Coinbase should temper the ardor of Gary Gensler and company.

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