BREAKING......

A U.S. judge has ruled that Coinbase is not a broker for its self-custody cryptocurrency wallet. Attorneys claim this is a "significant setback" for the SEC and a win for DeFi.

Attorneys for cryptocurrency are celebrating the recent ruling by a US court to drop accusations against Coinbase Wallet as a victory for decentralised finance (DeFi) apps and self-custody wallets.

On March 27, U.S. District Judge Katherine Failla rejected Coinbase's request to have a lawsuit filed by the Securities and Exchange Commission dismissed. The SEC claimed that Coinbase was not licenced and that their cryptocurrency staking offering was not registered as securities.

The judge also found that Coinbase's self-custody cryptocurrency wallet tool, Coinbase Wallet, which gives users complete control over their assets, was not used by Coinbase to conduct brokerage activity, as claimed by the SEC.

“[This] is a pretty giant win for browser-based wallet extensions, application front ends, and other similar applications,” said Ethena Labs general counsel Zach Rosenberg in a March 27 X post.

DeFi software developers that are the target of similar litigation may be able to use the court ruling to refute claims that they operated as unregistered brokers.

Legal director of the Blockchain Association, Marisa Tashman Coppel, expressed her satisfaction on social media, saying, "I am really happy to see the court curb massive SEC overreach with regard to the Coinbase Wallet allegations."

Mike Selig, a lawyer at Willkie Farr & Gallagher law firm, called the Coinbase Wallet dismissal a "significant setback" for the SEC in an X post.

“SEC aimed to discourage builders from developing peer-to-peer software. Didn’t work.”

Crypto venture firm Variant legal chief Jake Chervinsky said, however, that while there are “some positives” in the judge’s order — “overall, SEC wins.”

"Wallet's non-broker status is great for DeFi, and there's good language on other issues," he stated. However, on a number of important matters, the court (incorrectly, in my judgment) sided with the SEC.

Chervinsky clarified The "'contract' in 'investment contract,'" according to Judge Failla, is ignored by the Howey test, a legal framework used to categorize securities, which only applies to "purely secondary market transactions."

According to him, the court has also accepted the SEC's argument that a token project that uses the proceeds from sales to reinvest in its ecosystem qualifies as a security since it is a "common enterprise" where investors would reasonably expect profits.

Chervinsky remarked, "This is a disappointing outcome." However, this is just the start of the SEC's case against Coinbase in particular, not its conclusion.

The next phase of the case will be discovery, during which Coinbase and the SEC will gather data to support their positions.

First filed in June of last year, the SEC sued Coinbase on the grounds that it listed thirteen tokens that the agency considered securities and functioned as an unlicensed exchange and broker-dealer, both of which Coinbase refutes.