Coinbase’s latest feature has raised ire from the U.S. Securities and Exchange Commission before it even launches.
The feature, Coinbase Lend, has apparently been deemed unacceptable for release by the agency, which has threatened to sue the crypto exchange if it goes through with the launch. The SEC issued a Wells notice to Coinbase last Wednesday, notifying the company of its intent to take action. It hasn’t released a statement to the public, however, on the matter.
Coinbase Lend is designed to let customers earn a 4% annual percentage yield on the stablecoin USD Coin (USDC). A couple of other crypto startups have high interest lending programs, including Gemini and BlockFi.
Coinbase founder Brian Armstrong took issue with the agency’s stance, making his opinions known in an extensive Twitter thread. When Coinbase notified the SEC of its new product, the SEC labeled it a security, which struck Armstrong as “strange,” he said. Then, after the SEC threatened legal action, Armstrong called out the SEC for what he described as “really sketchy behavior” on Tuesday night. As a result of the news, Coinbase shares fell 4% to $258.20 on Wednesday.
“Look….we're committed to following the law,” Armstrong wrote in his thread. “Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it's nice if you actually enforce it evenly across the industry equally btw).”
In the thread, Armstrong recounted Coinbase’s talks with the SEC, which began in May. When Coinbase announced the launch of Lend in June, the SEC opened a formal investigation, asking for documents, employee testimonies, and a list of waitlisted customers. Coinbase said it provided all necessary information except for customers’ information. The bottom line, Coinbase insists, is that the SEC hasn’t specified where exactly the company went wrong.
“If we end up in court we may finally get the regulatory clarity the SEC refuses to provide,” Armstrong continued. “But regulation by litigation should be the last resort for the SEC, not the first.”
Coinbase Chief Legal Officer Paul Grewal also issued a statement saying that “We don’t know why” the SEC is threatening a lawsuit, and noted that Coinbase Lend doesn’t qualify as a security because users aren’t investing in the program and can redeem their USDC at any time.
“After months of trying to engage with the @SECGov on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us,” the company wrote. “We believe dialogue is at the heart of good regulation, even if the SEC may not.”
Mark Cuban replied to Armstrong’s thread expressing his support for the founder. “Brian, this is ‘Regulation via Litigation,’ he wrote. “They aren't capable of working through this themselves and are afraid of making mistakes in doing so. They leave it to the lawyers. Just the people you don't want impacting the new technologies. You have to go on the offensive.”
Coinbase Lend’s launch is slated for October, though it’s unclear if Coinbase will go ahead with the launch at all.