Crypto experts applaud a recent ruling by a U.S. judge dismissing accusations against Coinbase Wallet as a significant win for self-custody wallets and decentralized finance (DeFi) applications.

In a decision on March 27, U.S. District Judge Katherine Failla rejected Coinbase's attempt to dismiss a lawsuit by the Securities and Exchange Commission (SEC), stating that the SEC had adequately alleged that Coinbase operated without a license and offered unregistered securities through its crypto staking service.

The judge also noted that the SEC did not demonstrate that Coinbase engaged in brokerage activities through its self-custody wallet app, Coinbase Wallet, which allows users full control over their digital assets.

According to Zach Rosenberg, general counsel at Ethena Labs, this ruling represents a significant victory for browser-based wallet extensions and similar applications. He emphasized that Coinbase's assistance to Wallet users in tracking token prices does not equate to acting as a broker by providing recommendations or routing services.

The court's decision could serve as a precedent for DeFi developers facing similar legal challenges, enabling them to defend against allegations of operating as unregistered brokers. Marisa Tashman Coppel, legal head of the Blockchain Association, expressed satisfaction with the court's intervention against what she termed as excessive SEC actions regarding Coinbase Wallet.

Legal experts like Mike Selig from Willkie Farr & Gallagher view the dismissal of the Coinbase Wallet case as a setback for the SEC's regulatory efforts, particularly in discouraging the development of peer-to-peer software. Despite some positive aspects in the judge's ruling, Jake Chervinsky, legal chief at Variant, believes the SEC ultimately prevailed in several key aspects.

Chervinsky highlighted the court's application of the Howey test to secondary market transactions and its interpretation of token projects reinvesting profits into their ecosystem as constituting a common enterprise, potentially making them securities. While disappointed with this outcome, he noted that the case against Coinbase is far from over and will progress to the discovery phase, where both parties will gather evidence to support their arguments.

The legal battle between Coinbase and the SEC, initiated in June of the previous year, revolves around allegations of listing unregistered securities and operating without the necessary licenses, contentions that Coinbase has consistently refuted.