The crypto industry and the Securities and Exchange Commission of the United States (SEC) have a chilly relationship. The SEC’s view on crypto has changed over the years. The SEC was mostly benign in its early treatment of crypto. During and following the initial coin offerings (ICO) boom of 2016-17 the SEC began to show interest in the area, engaging in selective regulation and providing some guidance.

Jake Chervinsky, chief legal officer of Variant, is responsible for managing the firm’s legal affairs and helping portfolio founders navigate regulatory strategies.

Amanda Tuminelli, chief legal officer of the DeFi Education Fund and leader of the organization’s impact litigation efforts and policy initiatives.

The SEC, however, has recently taken a position that is strongly anti-crypto. The SEC of today appears to think that securities laws cover the vast majority crypto transactions, and that most participants in the crypto industry are breaking the law. The agency has not shown any signs of seeking to bring the crypto industry into compliance, but instead prioritizes regulation through enforcement against companies such as Coinbase and Kraken.

The SEC’s antipathy towards crypto puts the industry in a tough spot. Fear of SEC enforcement actions has made many builders afraid to do business in the United States. Even builders who have spent hundreds of thousands on law firms feel the threat of the SEC, as the cost of defending a enforcement action is devastating for a young business. Many crypto companies feel forced to play the role of sitting ducks and keep their heads down, hoping that the SEC will look elsewhere.

This week, the industry has gone on offense.

Lejilex , a crypto trading platform, filed a lawsuit in federal court in Texas on Wednesday along with its trade association Crypto Freedom Alliance of Texas. Lejilex claims that the sale of digital assets on the secondary market does not fall under the jurisdiction of the SEC.

This argument is very similar to the one Coinbase makes against the SEC as part of its enforcement action before the federal court in New York. It closely follows the views of industry lawyers on how securities laws are applied to crypto.

Coinbase and SEC debate with U.S. judge on whether securities law applies to listings

Lejilex’s lawsuit is an excellent example of “impact litigating” — a practice that involves bringing in strategic lawsuits to court, which present well-considered questions of law with the aim of achieving long-lasting effects beyond the case.

The civil rights movement in the United States, which began in the middle of the 20th century, is a classic example of impact litigation. Public interest groups won victories in case after case on issues such as school desegregation and interracial marriage. Recent advocates have used impact lawsuits to reduce the power and size of the administrative state by attacking unjustified rules through strict statutory construction.

It might seem strange to consider the judiciary the branch of government that individuals can turn to for better policies. The legislature (Congress), and the executive branch (the White House, administrative agencies and the SEC, for example) are responsible for passing laws. The courts have been playing a vital role for decades in shaping law to benefit society and serve public policy. Impact litigation is an effective way to bring about real change.

Impact litigation can be particularly helpful when: (1) the executive and its agencies misinterpret the law, (2) the legislature moves too slowly to correct this error by the executive, and (3) the judiciary is equipped with the tools necessary to interpret the law correctly.

The crypto industry is unquestionably a place where all three of these statements are true. Lejilex explained in its complaint and Coinbase argued that the SEC misinterprets the law in regards to digital assets. It’s difficult to see House Republicans and Senate Democrats coming to an agreement during an election year, and it is even more difficult to predict what the future will bring. The courts are using interpretive tools, such as the Major Questions doctrine, to overturn regulations without clear congressional approval.

Why Binance Coinbase Ripple, and other crypto firms cite the Major Questions Doctrine

The industry’s record in court is the strongest argument for impact litigation. Ripple Labs won a major victory against the SEC last year when Judge Torres ruled that secondary sales were not securities transactions. Uniswap Labs also won a opinion by Judge Failla, who will be deciding the Coinbase case. The opinion described the nature of smart contract and made a careful distinction between the protocol, the user interface, the software developers, and the token creators when determining liability. Grayscale also convinced a panel consisting of three circuit court judges to unanimously overturn SEC precedents dating back a decade. This paved the road for the approval spot bitcoin ETFs.

Impact litigation is a powerful tool, but also one that’s expensive, slow and unpredictable. Crypto policy advocates would choose compliance over a fight-to-the-death in the courtroom if they had to choose.

The SEC’s crypto approach leaves industry little choice other than to fail, flee or fight. Lejilex has decided to litigate this week. This is not the first time.