SEC threatens Coinbase

SEC threatens Coinbase with legal action over its “Lend” program

The US Securities and Exchange Commission (SEC) has reportedly threatened to take legal action against Coinbase if they go ahead with their program that allows users to earn interest from lending crypto assets. Why is this an issue? Keep reading.

So, why exactly does SEC want to sue Coinbase?

In a series of tweets, Coinbase CEO & co-founder, Brian Armstrong, said, “There’s really sketchy behavior coming out of the SEC recently.” He went into detail on the relationship between SEC and Coinbase.

According to Armstrong, the company had notified the enforcement agency about its intention to launch the “Lend” program. Eligible users could pre-enroll to earn interest on select assets starting with 4% APY on the USDC coin.

Coinbase Lend pre-enroll

However, the agency responded by saying that the “Lend” feature is a security and threatened to sue. Based on these tweets, Coinbase has an issue with SEC because of the following,

  • SEC has refused to let the company know why they think the “Lend” feature is a security.
  • The company has already provided SEC with the subpoenaed records and complied with the demanded employee testimonies.
  • The SEC has threatened to take legal action if they go ahead with the launch without explanation or guidance.
  • Other crypto companies are allowed to have the lending feature, which creates an unfair market.

Issues with interest-bearing crypto accounts

As stated by the Coinbase CEO, some crypto companies already offer interest-bearing accounts, among them, BlockFi and Celsius. However, BlockFi has already run into problems. In June, the New Jersey Bureau of Securities issued a cease and desist to the financial services company to stop offering these high yields accounts.

BlockFi cease and desist

According to the order, the company had raised $14.7 billion from investors while offering a yield of 0.25% to 7.5%. Because of this, BlockFi is under investigation in some states.

Cryptocurrency companies that allow users to lend their digital coins in return for interest are becoming more common globally. However, regulators have raised concerns that the products don’t comply with existing securities laws, especially in the US.

What’s the way forward?

Coinbase insists that the “Lend” program is not a security. It’s also looking for clarification and guidance from SEC on why they are preventing Coinbase from launching the same product that other companies already have. The product launch has been pushed to later in October.