Shares of Coinbase Global plunged during pre-market trading today. The company received a Wells Notice from the US Securities and Exchange Commission. In it, the agency expressed its intention to file suit in connection with Coinbase’s plans to launch its “Lend” program. This program is intended to allow customers to earn interest by lending out their digital assets. The SEC considers the crypto yield program to be a security.
According to Coinbase CEO Brian Armstrong, Coinbase contacted the Securities and Exchange Commission earlier this year to discuss the Lend program. Under this program, holders of the Stablecoin USD Coin (USDC) receive a 4% annual return. The Commission responded by saying that the program is a security. There was no further explanation on this. But the agency threatened Coinbase with a lawsuit if the program is implemented.
They won’t tell us why they think it’s a security. Instead, they demand a bunch of documentation from us (we comply), demand a statement from our employees (we comply), and end up telling us they will sue us if we proceed with the launch. With no explanation as to why.
Armstrong called on the SEC to provide an explanation. He pointed out that other crypto exchanges currently offer similar services to their users. The SEC’s action also threatens Coinbase competitors like BlockFi and Celsius. They have launched similar offerings. 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 be lending their USDC on Coinbase’s platform. And while Lend customers will earn interest by participating in the program, we are committed to paying that interest regardless of Coinbase’s continued business activities.
According to Grewal, the SEC’s only explanation was that they were evaluating the loan program based on the Howey and Reves case. That case is decades old. The SEC did not disclose the outcome of the evaluation.
SEC chief Gary Gensler advocates cooperation between the Unteand the SEC. This is to ensure smooth operations under a public framework. This is to ensure smooth operations under a public framework. According to Grewal, this is a rather contradictory statement considering how the regulator operates. Coinbase postpones launch of program pending further feedback.
SEC investigating Uniswap Labs
The SEC is reportedly investigating the startup behind Uniswap, the world’s largest decentralized cryptocurrency exchange. Wall Street Journal reported that the regulator is investigating the investor and marketing services of Uniswap Labs, the exchange’s lead developer.