Interesting news for crypto. Yesterday we had Coinbase losing, after rejection of its bid to dismiss the SEC’s complaint about the crypto wallet being an illegal broker, but hours later, the news favor Coinbase, since it was determined that its activities doesn't constitute those of a broker, being the wallet self-custody, the users have total control on their transactions, and Coinbase just provides information, and infrastructure to make it possible.
Unregistered Broker Allegations
Back in June of 2023, the Securities and Exchange Commission (SEC) filled a lawsuit against Coinbase for engaging on what they determinate as unregistered securities sells, and acting as an unregistered broker and exchange.
"A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange." Source they perform transactions on behalf of their customers, meaning the customer loses control over the funds that are handled by the broker, and then assume the results of said transactions.
Not a Broker
The Coinbase wallet is a non-custodial wallet, where the users can receive information from Coinbase, but are in complete control of their own transactions, as the wallet can not perform transactions on their behalf.
This is why the judge had ruled that Coinbase's self-custody crypto wallet doesn’t make it a broker.
This is a huge win not only for Coinbase but also for other DeFi applications, as it's established that a wallet is not a broker.
Not the end of the case
Even when this partial win has a great impact for crypto, the case is not closed, as the court sided with SEC in some concepts that are not entirely correct as to what it really means in the crypto sphere. For instance, "the court also adopted the SEC’s theory that a token project using sale profits to reinvest into its ecosystem is a “common enterprise” where buyers would reasonably expect profits, making it a security" Source. This goes against something very fundamental on the crypto market, it´s volatility, and how investors use it to bet and make money on the risk. Risk is an essential aspect of earning on crypto, so profits can be "desired" but not "expected".
This partial wins seems to be more significant for DeFi than for Coinbase in the overall case, but the case is still going, Coinbase and SEC have still allegations do defend, we can expect more wins for Coinbase, but still have the issue that the courts are operating on definitions provided by SEC.
Hope you liked it, until the next time
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