SEC blocks Coinbase’s high-interest crypto product
Coinbase’s CEO revealed yesterday that the top regulator had threatened to sue the exchange if it continued working on its crypto lending programme
Coinbase CEO Brian Armstrong had a lot to get off his chest on Tuesday through his Twitter account as he responded to the SEC’s conduct concerning the exchange’s soon-to-be-launched yield product. With several players in the crypto industry increasingly moving towards allowing their customers to lend out crypto assets to earn interest, Coinbase announced earlier this year that it would be introducing its very own yield-generating product dubbed Lend.
The product would be based on USDC, with users able to earn up to 4% annual percentage yield (APY). The now-publicly listed platform marketed the product as one that would see users earn up to 50x the average interest rate — which is at 0.07%. It also revealed that the high interest rates would be without any heightened risk as customer savings would be protected with a guarantee.
The product’s launch was set to be in a few weeks, so Coinbase updated the SEC, and according to Armstrong, the SEC was not welcoming. The agency said that the Lend feature was a security without offering any explanation of this view.
“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.”
Armstrong, who also doubles up as a co-founder of crypto donation organisation GiveCrypto, was evidently not impressed by the SEC’s antics, noting that while his company had made efforts to do what was right, the SEC had resorted to threats.
The exchange’s CEO was also wary of the SEC’s attitude towards crypto, citing an instance that occurred earlier in the year when SEC Chair Gary Gensler categorically refused to meet with him.
Chief Legal Officer Paul Grewal revealed that Coinbase has been in communication with the financial watchdog for six months and has also been compliant with the regulator’s requests. The exchange remained shocked by the SEC’s intent to sue without a specific explanation – an action he categorised as an unhealthy regulatory relationship.
“A healthy regulatory relationship should never leave the industry in that kind of bind without explanation,” he wrote.
It remains to be seen what the SEC has planned for the crypto industry and its players. Coinbase joins the list of crypto entities under the SEC’s radar, with others such as BlockFi under investigation for illegal offerings.
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