Cryptocurrencies, how and why the SEC will spank Coinbase
by Chiara Rossi
The SEC is investigating Coinbase on a loan program that the company plans to market and has indicated that it would sue the company for the offer
US regulators have issued a warning to cryptocurrencies.
The Securities and Exchange Commission (SEC) is ready to sue Coinbase, a cryptocurrency trading platform, if it launches Lend. The latter is a crypto-based return program, considered an equity product, which should therefore be subject to certain rules. The service intends to offer annual returns of 4% on Usdc stablecoin deposits.
Coinbase co-founder and CEO Brian Armstrong revealed the controversy in a series of tweets on Tuesday. He called the SEC’s actions “imprecise” and “closed-door scare tactics”, adding that other cryptocurrency companies are able to offer services to Lend.
A difficult day yesterday also for Coinbase’s stock, which lost 3.23%. Coinbase’s stock fell after Bitcoin’s price plunged nearly 10% on the day it became legal tender in El Salvador. With a price tag of $ 46,780, Bitcoin’s market cap has shrunk to $ 883 billion, according to data from CoinMarketCap.
On April 14, the cryptocurrency exchange made its debut on the Nasdaq, for a listing characterized by high volatility.
All the details.
WHAT IS HAPPENING BETWEEN COINBASE AND THE SEC
In a blog post by the company Paul Grewal, Coinbase’s Chief Legal Officer, revealed that the SEC has issued a Wells notice and opened a formal investigation.
In the letter, sent a week ago, the federal stock exchange supervisory body informed Coinbase that it intends to sue it if it launches the return program based on Coinbase Lend crypto as planned.
Coinbase – one of the most popular platforms for buying, selling and depositing cryptocurrencies – accused the SEC of behaving in a “suspicious” manner.
BECAUSE OF THE LEND PRODUCT
So the dispute between Coinbase and the Sec is centered on the product called Lend. The company markets it as a high-yield alternative to traditional savings accounts.
“For Lend we are trying to allow eligible customers to earn interest on selected assets on Coinbase, starting at an annual percentage return of 4% on the USD Coin (USDC),” reads the post written by Grewal.
In essence, Coinbase intends to make loans in USD Coin to verified borrowers, allowing those who participate in the program to earn 4%. The company claims that the cryptocurrency that the individual user chooses to lend is backed by Coinbase. The user can continue to send and sell their cryptocurrency without delays and without commissions.
COMPETING WITH COMPOUND AND AAVE
With this new product, Coinbase wants to compete with popular decentralized finance (DeFi) products, such as Compound and Aave.
THE COINBASE POSITION
Coinbase CEO Brian Armstrong launched a lengthy attack on the SEC with a 21-post Twitter thread. Armstrong explained that Coinbase approached the SEC earlier this year to inform it of the launch of the Coinbase Lend program.
As reported by the CEO of Coinbase, the SEC replied to the company that the lending program consists of an equity product, threatening to sue the platform if the service was launched. According to Armstrong, the SEC did not provide any “valid reasons” for its conclusions. Coinbase has meanwhile announced that it will suspend the launch of the lending program at least until October.
The cryptocurrency exchange said it had proactively engaged with the SEC on the Lend program for nearly six months, exchanging documents with the authorities and answering questions asked. “We are threatened with legal action before a single effective guidance has been provided to the industry,” Armstrong tweeted. “Litigation regulation should be the SEC’s last resort, not the first.”
THE CLAW OF US REGULATORS
Finally, as the Financial Times points out, US regulators are scrambling to keep pace with the growth of the cryptocurrency industry.
Last week Gary Gensler, president of the SEC, called on the US Congress to grant regulators more explicit authority to monitor cryptocurrency exchanges, citing the need for investor protection.
Meanwhile, Gensler urged cryptocurrency trading platforms to register with the SEC as they trade stocks. In a speech on Aug. 3, he said he believes that cryptocurrency trading and lending platforms “imply not only securities laws” but “commodity and lending laws “.