The U.S. court ruled that crypto exchange Coinbase couldn’t broker through its non-custodial Coinbase Wallet. The crypto community called the court’s decision an essential precedent for DeFi solution providers.
The U.S. District Court for the Southern District of New York granted Coinbase’s motion to dismiss the Securities and Exchange Commission’s (SEC) charges related to Coinbase Wallet.
According to Judge Katherine Failla’s ruling, the cryptocurrency exchange can’t be considered a broker due to its self-custody wallet app. The reason is that the app is non-custodial, meaning users have full control over their assets.
The SEC upheld other charges against Coinbase. The judge denied the exchange’s motion to dismiss the case and ruled that the SEC could prove that Coinbase operated as a broker and clearing agency in compliance with federal securities laws and engaged in the unregistered offer and sale of securities. The court ordered the parties to submit evidence of guilt or lack thereof by April 19, 2024.
While the court’s ruling can’t be considered a victory for Coinbase, the crypto community called it a giant win for providers of non-custodial crypto wallets and other similar Web3 apps. The ruling sets a precedent that DeFi developers can use in the future when faced with similar claims from regulators. It also eliminates the SEC’s power to accuse DeFi solution providers of unregistered brokerage activity.
In June 2023, the SEC sued Coinbase, claiming that the cryptocurrency exchange violated federal laws while naming 12 tokens as securities.
