Coinbase Global shares crashed during pre-trading today. The company received a Wells Notice from the US Securities and Exchange Commission. In it, the agency expressed its intention to sue in connection with Coinbase’s plans to introduce the “Lend” program. This program is designed to help customers earn interest by borrowing their digital assets. The SEC regards the crypto yield program as a security.
According to Coinbase CEO Brian Armstrong, Coinbase contacted the securities regulator earlier this year to discuss the Lend program. As part of this program, holders of the stablecoin USD Coin (USDC) receive an annual return of 4%. The Commission responded by stating that the program was a security. There was no further explanation. But the agency threatened Coinbase with legal action if the program is rolled out.
They don’t want to tell us why they think it is a security. Instead, they ask for a bunch of papers from us (we will comply), demand a statement from our staff (we will comply) and at the end tell us that if we proceed with the launch they will sue us. Without an explanation as to why.
Armstrong asked the SEC to issue a statement. He pointed out that other crypto exchanges are currently offering similar services to their users. The SEC’s approach also threatens Coinbase competitors such as BlockFi and Celsius. They introduced similar offers. BlockFi, which offers some of the highest yielding products, is under investigation in several US states.
Coinbase CLO Paul Grewal wrote in a blog post published today:
Customers will not ‘invest’ in the program. They will lend their USDC on Coinbase’s platform. And although Lend customers will earn interest by participating in the program, we are required to pay that interest independently of Coinbase’s further business activities.
According to Grewal, the SEC’s only statement was to evaluate the loan program based on the Howey and Reves case. The case is decades old. The SEC did not disclose the result of the assessment.
SEC chief Gary Gensler is in favor of collaboration between digital asset companies and the SEC. This is to ensure smooth operation under public framework conditions. According to Grewal, that’s a pretty contradicting statement considering how the regulator operates. Coinbase is postponing the start of the program pending further feedback.
SEC is investigating Uniswap Labs
According to reports, the SEC is investigating the startup behind Uniswap, the largest decentralized cryptocurrency exchange in the world. The Wall Street Journal reported that the regulator is investigating the investor and marketing services of Uniswap Labs, the main developer of the exchange.