The SEC has threatened to sue Coinbase over claims that it uses crypto yield as security since they do not understand that concept.
From a tweet on Wednesday, Brian Armstrong, the Coinbase CEO, complained that the SEC had had some dubious behaviors lately. He tweeted about this before starting a thread on its dealings with the SEC.
Armstrong cleared the air that Coinbase approached SEC in the first quarter of the year about its lending program that will give a 4% annual yield return on any deposits made on the USD Coin (USDC) stablecoin. The SEC approved that the lending program is security though it did not give any further explanation. The SEC, ironically, warned that they would sue the firm if they launched the program.
According to him, it is unfair to be sued without any explanation considering Coinbase complies with all other requirements. Armstrong highlighted that there are many other crypto firms in the market with similar lending services and hence demands SEC regulations on it.
It looks like SEC is fighting crypto yields product firms such as BlockFi and Celsius. Currently, BlockFi is in the spotlight over its high-interest products.
Conflict of interest
It looks like there is a small misunderstanding that makes the SEC want to sue Coinbase. According to the SEC, the lending program is an investment contract or a note. It believes that Coinbase will benefit from customers’ investments. According to Coinbase, customers will be lending their USDC coins and not investing. By lending USDC to Coinbase, they will get an interest from it.
Paul Grewal, Coinbase’s chief legal officer, said all they know is that the SEC is assessing the lending program using the Howey Test. Despite that, the SEC is not willing to share the assessment.
Gary Gensler, the SEC boss, urges all crypto firms to cooperate with the SEC so that they can easily comply with the regulations. Despite that statement, there are many firms that try to work closely with SEC; only that SEC tries to fight them.
Grewal clarified that they are waiting for feedback from SEC before they launch the program. They are hoping to launch the lending program by October.