A federal judge dismissed a lawsuit against Uniswap. What does it mean for the SEC’s case against Coinbase?

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On Tuesday, a federal judge decided to throw out a class-action lawsuit against the decentralized crypto exchange Uniswap.

Crypto Twitter/X heralded the decision as a win for the industry, but the case’s dismissal occurred in a lower court federal court, did not involve a federal agency (e.g. the Securities and Exchange Commission), and was not a marquee piece of crypto-related litigation that onlookers were watching with bated breath.

So, were the cheers celebrating the case’s dismissal just evidence of an embattled industry latching onto any court decision—no matter how small—as a win? Or does the federal judge’s decision have ramifications for the industry and other crypto cases winding their way through the courts?

The lawsuit explained

In April 2022, a group of plaintiffs filed a class-action lawsuit against the developers of Uniswap, the largest decentralized exchange, and its investors, which include a who’s who of venture capitalists in crypto, including a16z and Paradigm.

In the suit, the plaintiffs alleged that they lost money after investing in a series of scam tokens they bought on the exchange. The creators of the scam tokens were anonymous, so the plaintiffs held the developers and investors accountable for their losses under federal securities laws.

However, the judge presiding over the case, Katherine Polk Failla, said in her decision that “[d]ue to the protocol’s decentralized nature, the identities of the scam token issuers are basically unknown and unknowable, leaving plaintiffs with an identifiable injury but no identifiable defendant.”

She dismissed the lawsuit, adding that the plaintiff’s claims were akin to “attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.”

However, her decision to dismiss doesn’t preclude the plaintiffs and their lawyers from refiling their class-action suit in a state court.

Where does Coinbase fit in?

Onlookers pointed out that Failla is the same judge assigned to both the SEC’s blockbuster lawsuit against Coinbase, the largest crypto exchange in the U.S., and the Justice Department’s indictment of the developers of Tornado Cash, a protocol that obscures the owners of cryptocurrencies.

Moreover, Failla’s ruling—that software shouldn’t be held liable for the actions of bad actors—may be an indication of how she would interpret future cases, as Coinbase and Tornado Cash both position themselves as software platforms. 

However, two lawyers told Fortune that to extrapolate Failla’s reasoning beyond the Uniswap case is a step too far. “The difference is that, in this case, the plaintiffs are arguing that you should be liable for trades that happened on his platform,” Anthony Tu-Sekine, head of Seward & Kissel’s blockchain and cryptocurrency division, said in an interview. “With Coinbase, the SEC is not saying that Coinbase should be held liable to somebody for damages. They are saying that Coinbase is operating as an unregistered securities exchange. Those are two different types of claims.”

Jack Graves, a law professor at Syracuse University who teaches a class on cryptocurrency law, echoed Tu-Sekine’s interpretation. “I don’t think this has anything to do with those cases,” he told Fortune, in reference to both the Coinbase and Tornado Cash litigation. “I’d bet on the SEC in the Coinbase case,” he added later.

‘Enormous legal and technological complexities’

Failla does not sit on either an appeals court or the Supreme Court, so her dismissal does not set mandatory legal precedent. That being said, crypto legal experts told Fortune that judges inevitably look at other judges’ decisions, and that her position in the Southern District, which has had a historically outsized role in shaping financial regulation, adds even more weight to her dismissal.

“I think, as a rule, the Southern District of New York gets more deference from other district courts on financial issues,” Graves told Fortune. “I think, as a rule, they [judges] follow each other. At least they consider what the other courts have done.”

And how could Failla’s decision influence future courts and policymakers? In her opinion, she writes that “the court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that plaintiffs’ concerns are better addressed to Congress than to this court.”

Yesha Yadav, a law professor at Vanderbilt University who focuses on banking and financial regulation, told Fortune that the judge’s invocation of Congress is especially important, given she echoes a rallying cry to which crypto industry advocates, especially Coinbase, often resort. 

“This is one of the first test cases for DeFi to come up in the courts,” Yadav said. “It’s clear that this analysis highlights the enormous legal and technological complexities that are in play, and really throws the ball to Congress to try and deal with this.”

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