Coinbase & the Securities and Exchange Commission

Coinbase & the Securities and Exchange Commission

Coinbase CEO Brian Armstrong has expressed his dissatisfaction with the company’s existing relationship with the Securities and Exchange Commission of the United States. As a result, he claims, the Securities and Exchange Commission (SEC) has threatened to prosecute the bitcoin exchange if it introduces its yield-generating product known as Coinbase Lend.

Coinbase intends to use this new product to compete with popular decentralized finance (DeFi) solutions such as Compound and Aave, which are already available on the market. The business intends to run a lending pool that is primarily focused on USD Coin (USDC), a stable coin that is linked to the United States dollar.

The firm hopes to launch Coinbase Lend before the end of the year. Users will be able to participate in the lending pool by transferring crypto assets to the Coinbase Lend address. Eventually, the firm intends to lend out the cryptocurrency assets it has amassed. In return for their participation in the lending pool, Coinbase customers get high-interest rates on their deposits. On its preview page, Coinbase offers an annual percentage yield of 4 percent.

According to Brian Armstrong, the firm sought out the Securities and Exchange Commission before publishing the report. In response, he said on Twitter, ” They responded by telling us this lend feature is a security.”

“They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why,” he further added.

In addition, Coinbase’s Chief Legal Officer, Paul Grewal, posted a blog post describing the events on the company’s website. Despite the fact that the SEC has said that Coinbase’s Lend program is a security, it seems that the firm has chosen to go ahead and pre-announce the new feature.

“The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion. Rather than get discouraged, we chose to continue taking things slowly. In June, we announced our Lend program publicly and opened a waitlist but did not set a public launch date,” Grewal said.

Here’s a great tip for any business owners who are reading this post: Even if the Securities and Exchange Commission (SEC) says you can’t launch anything, don’t put up a waitlist with the phrase “coming soon.”

No one was surprised when Coinbase announced that the SEC had chosen to launch a formal inquiry as a result of the incident. One employee was also required to spend a day with the Securities and Exchange Commission to answer inquiries.

“They asked for documents and written responses, and we willingly provided them. They also asked for us to provide a corporate witness to give sworn testimony about the program. As a result, one of our employees spent a full day in August providing complete and transparent testimony about Lend,” Grewal stated.

As a consequence, Coinbase has gone insane and has decided to start a public relations campaign against the Securities and Exchange Commission. One of the major arguments advanced by Brian Armstrong is that other businesses have already begun providing loan pools, and there is no reason why Coinbase should be the only one to do so.

He said that although lots of other cryptocurrency businesses continue to provide a lend function, Coinbase is “somehow” barred from doing so by regulators.

As a result of this hazardous approach, Coinbase may find itself alienating the whole cryptocurrency ecosystem. Increasing monitoring of DeFi, as well as the industry-wide implementation of tighter regulations, are possible outcomes, as Sar Haribhakti has pointed out.

Brian Armstrong indicated that the Securities and Exchange Commission’s stated mission is to safeguard investors and promote fair markets. So, who exactly are they protecting here, and what exactly is the danger? People seem to be pleased with the return they are receiving on these different goods, which span a wide range of other cryptocurrency companies.

If you read the small print, Coinbase’s Lend program does not provide any protection for investors. The following is what you will see at the bottom of the Coinbase Lend page: Coinbase is not a bank, and Lend is not a high-yield USD savings account, as some people believe. Your borrowed cryptocurrency is not covered by the FDIC or the SIPC insurance policies.

That does not give investors much reason to be optimistic. Coinbase and the Securities and Exchange Commission (SEC) will have to get down at the same table to discuss crypto loan products at some point since a tweetstorm will not fix the problem.

Leave a Comment

Your email address will not be published.