In the ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and Coinbase, a federal judge has dismissed SEC allegations against Coinbase Wallet, the company’s self-custody crypto wallet app. U.S. District Judge Katherine Failla determined that Coinbase’s self-custody wallet doesn’t make it a broker, a decision that crypto lawyers hail as a “giant win” for self-custody wallets and decentralized finance (DeFi) apps.

TLDR

A U.S. judge dismissed SEC allegations against Coinbase Wallet, ruling that the self-custody crypto wallet doesn’t make Coinbase a broker, which is seen as a win for DeFi apps and self-custody wallets.
The judge denied Coinbase’s bid to dismiss the SEC’s lawsuit, finding the SEC adequately alleged that Coinbase engaged in unregistered sales of securities through its staking program.
The court’s decision raises questions about the SEC’s authority under the Major Questions Doctrine, Coinbase’s due process rights, and the application of the Howey test to crypto-assets.
The court dismissed Coinbase’s concerns over the SEC’s failure to conduct rulemaking on crypto-asset securities, arguing that the SEC is applying an existing standard rather than creating new regulatory authority.
The opinion’s statement linking token purchases on exchanges to the token’s underlying ecosystem could have troubling implications for U.S. crypto exchanges.


The court’s ruling could provide a precedent for DeFi app developers facing similar lawsuits, allowing them to argue against allegations of acting as unregistered brokers. Industry advocate body the Blockchain Association and crypto venture firm Variant view the dismissal as a significant setback for the SEC and a curb on its overreach regarding self-custody wallets.
However, the judge also denied Coinbase’s bid to dismiss the SEC’s lawsuit, finding that the regulator had sufficiently alleged that Coinbase engaged in unregistered sales of securities through its staking program. The court’s decision raises questions about the SEC’s authority under the Major Questions Doctrine, Coinbase’s due process rights, and the appropriate application of the Howey test to crypto-assets as opposed to traditional securities.
The court dismissed Coinbase’s concerns over the SEC’s failure to conduct rulemaking on crypto-asset securities under the Administrative Procedures Act (APA), arguing that the SEC is not creating new regulatory authority but rather engaging in a fact-intensive application of an existing standard. This argument closely reflects the opinions expressed by SEC Chair Gary Gensler regarding enforcement actions versus rulemaking.
The court’s opinion also included a potentially troubling statement for U.S. crypto exchanges, linking token purchases on exchanges to the token’s underlying ecosystem. This statement could have implications for the classification of tokens traded on exchanges as securities.
As the case moves into the discovery phase, the court’s decision is seen as a partial victory for the SEC, although the dismissal of allegations against Coinbase Wallet is a significant win for the crypto industry.
The outcome of this case will have far-reaching consequences for the regulation of cryptocurrencies and the future of DeFi in the United States.
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