What is the legal battle between Coinbase and the SEC actually about?
What is the legal battle between Coinbase and the SEC actually about?What is the legal battle between Coinbase and the SEC actually about?Kryptowährung (Symbolbild)Kryptowährung (Symbolbild)

As we previously reported, the U.S. Securities and Exchange Commission (SEC) is threatening legal action against Coinbase. The firm is said to be dropping its plan to offer interest to users for lending cryptocurrencies. Why is this a problem? We tried to put the matter under the microscope.

Why exactly does the SEC want to sue Coinbase?

In a series of tweets, Coinbase CEO and co-founder Brian Armstrong said:

The SEC has been acting really shady lately.

He went into detail about the relationship between the SEC and Coinbase.

According to Armstrong, the company had notified the agency of its intention to launch the Lend program. Eligible users would sign up in advance to receive interest on certain assets. It would start with 4% APY on USDC Coin.

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However, the authority responded by explaining that the “Lend” feature is a security and threatened to sue. Based on these tweets, Coinbase has an issue with the SEC over the following:

  • The SEC has refused to tell the company why it believes “Lend” is a security.
  • The company has already provided the SEC with the requested documents and had employees testify.
  • The SEC has threatened to take legal action if the company proceeds with the program without explanation or accompaniment.
  • Other crypto companies are allowed to use the lending function. This creates an unfair market situation.

Problems with interest-bearing crypto accounts

As Coinbase’s CEO explained, some crypto companies already offer interest-bearing accounts. These include BlockFi and Celsius. However, BlockFi has already encountered problems. In June, dhe New Jersey Bureau of Securities ordered the financial firm to stop offering such high-yield accounts.

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According to the order, the company had collected $14.7 billion from investors while offering returns ranging from 0.25% to 7.5%. As a result, BlockFi is under investigation in some US states.

There are increasingly common offers from crypto companies that let users borrow their coins for interest. However, regulators have raised concerns that the products do not comply with existing securities laws, especially in the US.

What’s next.

Coinbase insists that the “Lend” program is not a security. The company also wants to know from the SEC why it is preventing Coinbase from launching the same product that other companies already have. The launch of the program was initially delayed until October.