In a court hearing scheduled for Wednesday, Coinbase, is set to argue that the US Securities and Exchange Commission (SEC) should drop its case against the platform. Coinbase contends that the tokens traded on its platform are not comparable to securities, and therefore, the SEC's regulatory overreach should be dismissed.

Allegations and Arguments: Lawsuit Targets Token Trading and Staking Program

This court battle is closely monitored by the crypto community, as it could provide clarity on the SEC's jurisdiction over the digital assets sector. Coinbase's primary argument revolves around the assertion that the SEC is overreaching its authority and that the assets listed on its platform are not securities, differentiating them from traditional stocks or bonds.

The SEC filed a lawsuit against Coinbase in June, alleging that the exchange facilitated the trading of at least 13 crypto tokens that should have been registered as securities. The regulatory body has also accused Coinbase of operating illegally as a national securities exchange, broker, and clearing agency without proper registration.

One particular point of contention is Coinbase's "staking" program, where the platform pools assets to verify activity on blockchain networks and rewards customers. The SEC claims that this program should have been registered with the agency.

⚠️ COINBASE, SEC SET TO FACE OFF IN FEDERAL COURT OVER REGULATOR'S CRYPTO AUTHORITY
(Reuters)

Coinbase will argue at a court hearing on Wednesday that the U.S. securities regulator should drop its case against it because the tokens traded on its crypto exchange are not akin to… pic.twitter.com/SvAbqSMynS

— PiQ (@PiQSuite) January 17, 2024

Coinbase Draws Inspiration from Ripple Labs Case in SEC Lawsuit

Coinbase is not alone in challenging the SEC's stance. Other cryptocurrency firms share similar views, collectively arguing that most tokens do not meet the definition of a security and that legislation is necessary to regulate the industry.

In August, Coinbase sought to dismiss the SEC's lawsuit, citing a separate case involving Ripple Labs, where a judge found that the company did not violate federal securities law by selling its XRP crypto token on public exchanges. Coinbase considers this ruling a significant victory for the crypto sector. However, the SEC maintains that its case against Coinbase should proceed, pointing to a different court ruling in the case of crypto developer Terraform Labs, which supported the regulator's position.