Coinbase asks DOJ to block state-level crypto enforcement actions

Coinbase, a major crypto exchange, has officially asked for the US Department of Justice (DOJ) intervention against state-level enforcement of crypto regulations. In a petition, Coinbase said that a patchwork of lawsuits and licensing schemes is tearing America’s crypto market apart.

In the letter sent to the DOJ, the company says, “As Coinbase has long recognized, the existing financial regulatory system doesn’t work effectively for the open, decentralized networks that crypto has created […] We Need a New Approach to Regulating Crypto. And the lack of a clear, uniform regulatory framework can hamper innovation and drive US businesses overseas.” 

Coinbase’s Chief Legal Officer, Paul Grewal, said that the federal government must intervene to stop state agencies from imposing their own enforcement actions, especially in cases where the activities in question are lawful under federal law. 

States accused of contradictory crypto regulations

He specifically pointed to the Oregon lawsuit. As reported by Cryptopolitan, the state accused Coinbase of selling unregistered securities in the state. Grewal claimed that this situation contradicts the principles of federalism and causes confusion in the regulatory landscape.

“When Oregon can sue us for services that are legal under federal law, something’s broken,” said Grewal in a Tuesday X post. “This isn’t federalism–this is government run amok.”

The conflict began in April when Oregon’s Attorney General filed a lawsuit against Coinbase. He claimed that the exchange had sold unregistered securities to state residents. The case was similar to claims made against Coinbase by the US Securities and Exchange Commission (SEC), but the SEC dropped it earlier this year.

However, although there isn’t a federal case, Oregon and a few other states have taken matters into their own hands. According to Paul Grewal, states applying their own rules to a market for digital assets that is still mostly governed by federal law is confusing from a legal point of view. 

The company also pointed out that New York’s attempt to label Ethereum as a security and orders to stop staking were examples of bad states trying to bring back the SEC’s old “regulation by enforcement” strategy.

In addition, the letter addressed constitutional problems with state compliance, mainly the stop-and-desist orders that California, Maryland, New Jersey, and Wisconsin sent to the company’s staking services. These orders went into effect right away, without any prior meetings.

Lastly, the filing reveals recent actions taken by Maine to target self-custody wallets. These actions require crypto companies to “exhaustively identify” recipients of transfers to unhosted wallets and give the state this information during investigations.

According to the company, “the crypto industry therefore needs an updated set of nationally uniform rules with bright lines of authority drawn between regulators. Costly turf battles among federal and state regulators can undermine customer protections, stifle responsible development, and leave federal agencies exposed to reputational risks from conflicting enforcement actions.”

Grewal asks for the DOJ’s support on the market structure

Meanwhile,  lawmakers on the US Senate Banking Committee are expected to take up a vote soon on legislation to establish a digital asset market structure. The bill is expected to clarify the roles of the US financial regulators, the SEC and the Commodity Futures Trading Commission (CFTC).

“The Department should submit a views letter urging Congress to adopt broad preemption provisions in any market-structure legislation,” Grewal said. “Any preemption provision should characterize federally regulated digital assets as exempt from state blue-sky laws, make clear that new state licensing and other state regulatory requirements do not apply to crypto intermediaries, and apply retroactively.”

Coinbase also urged the DOJ to support broad preemption provisions in pending congressional legislation, including the House-passed CLARITY Act and the Senate’s Responsible Financial Innovation Act.

If you're reading this, you’re already ahead. Stay there with our newsletter.