Coinbase Inc., a major cryptocurrency exchange based in the U.S., has decided to rescind its plans of launching Lend, its flagship financial product made specifically for lending with USD Coin ($USDC).
The firm’s CEO, Brain Armstrong, says that the cancellation of the plans set for Lend was due to a warning issued to the exchange by the U.S. Securities and Exchange Commission (SEC). Coinbase later clarified its position on the matter with the following statement:
“Last Wednesday, after months of effort by Coinbase to engage productively, the SEC gave us what’s called a Wells notice about our planned Coinbase Lend program. A Wells notice is the official way a regulator tells a company that it intends to sue the company in court. As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it.”
Coinbase further says that their company has been “proactively engaging” with the SEC on matters of compliance for the past six months that Lend has been in their product pipeline. However, despite this perceived cooperation with the regulatory agency, Coinbase “chose not to” launch the product because they believe “in the value of open and substantive dialogue” with regulatory authorities such as the SEC.
Prior to any official announcement of the product’s details, Coinbase claims that they have placed the product for review and evaluation with the SEC, calling the move “far from the norm” in the blockchain industry, given how most other crypto companies already have lending products on the market, especially the select number of firms focused in the decentralized finance (DeFi) sector.
The SEC claims that Coinbase’s Lend is in violation of securities regulations which were highlighted in case precedents ruled on by the U.S. Supreme Court such as the Howey and Reves case (SEC v. W. J. Howey Co., 328 U.S. 293 (1946). This warning from the Commission was communicated by Paul Grewal, Chief Legal Officer at Coinbase.
“The SEC won’t share the assessment itself, only the fact that they have done it. These two cases are from 1946 and 1990. Formal guidance from the SEC about how they intend to apply Howey and Reves tests to products like Lend would be a big help to regulating our industry in a responsible way. Instead, last week’s Wells notice tells us that the SEC would rather skip those basic regulatory steps and go right to litigation.” wrote Grewal.
Other crypto lending platforms such as BlockFi and Celsius have received similarly-toned warnings with the same legal reference.
Coinbase’s Lend service would have provided users and prospective investors with a 4% APY programme on the USD Coin ($USDC), a fully reserved, fiat-backed stablecoin developed by Circle Inc. Coinbase says that the product was aimed at the “financial empowerment” of its customers, providing a way for users to earn interest from select assets including stablecoins and other crypto tokens.
With the Lend service now rescinded and perhaps set for another round of review by the SEC, Coinbase later announced that it will still go ahead with the fresh relaunch of Coinbase Prime with updated capabilities, its comprehensive platform for institutional investors.
Coinbase Prime will provide institutional investors as well as other targeted financial audiences with “advanced trading, battle-tested custody, and financing in a single solution.” The Coinbase Prime platform has been used by a number of premiere firms in the industry such as Meitu, One River, and MicroStrategy.
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