Brian Armstrong, CEO of Coinbase, has strongly reacted to the current relationship between the company and the U.S. Securities and Exchange Commission. He claims that the SEC threatens to sue Coinbase Lend if the company launches its yield-generating product, Coinbase Lend.
Coinbase's new product will allow it to compete against popular Decentralized Finance (DeFi), products such as Aave and Compound. The company plans to create a USD Coin (USDC) lending pool that is primarily focused on USD Coin, a stablecoin that can be pegged to USD.
Users will be able contribute to Coinbase Lend if the company launches Coinbase Lend. The company will eventually lend these crypto assets. High interest is what Coinbase users receive in return for contributing to the lending pool. On its preview page, Coinbase promises a 4% annual percentage yield.
Brian Armstrong claims that the company contacted the SEC to obtain the release of the feature. He tweeted that they replied by saying that the lend feature was a security.
They refuse to explain why they believe it is a security and instead subpoena several records from us (we obey), demand testimony of our employees (we obey), and then tells us that they will sue us if they launch the project, with no explanation.
Paul Grewal, Coinbase's Chief Legal Officer, also posted about the events on his blog. The company seems to have decided to go ahead and pre-announce this new feature, despite the fact that Coinbases Lend program was deemed a security by the SEC.
Lend is a security issue, according to the SEC. However, they wouldn't explain why or how. We chose to not get discouraged and instead, continued to take things slow. Paul Grewal wrote that we made public our Lend program in June and created a waitlist. However, no date was set.
This post contains a tip for entrepreneurs. Don't wait to be told by the SEC that you are unable to launch your product.
Coinbase reports that the SEC opened a formal investigation into Coinbase's allegations. To answer any questions, one employee had to spend the day with SEC.
We were happy to provide them with written and documents. They asked us to provide corporate witnesses to give sworn testimony on the program. Grewal wrote that one of our employees spent the entire day providing transparent and complete testimony about Lend.
Coinbase has launched a public relations campaign against the SEC, and is now insane. Brian Armstrong's main argument is that lending pools have been offered by other companies, so it makes no sense for Coinbase to offer this product.
He tweeted that while many other crypto companies offer a lending feature, Coinbase is not permitted to.
This is a risky strategy, as Coinbase could alienate the entire crypto ecosystem. As Sar Haribhakti noted, there could be more scrutiny of DeFi and industry-wide enforcement stricter rules.
The SEC's primary goal is to protect investors, and create fair markets. Who are they protecting and what is the harm? Brian Armstrong stated that people seem quite happy to earn yield from these products across many other crypto companies.
Coinbase's Lend program doesn't protect investors, if you look at the fine print. The bottom of Coinbase's Lend page explains that Lend is not high-yield USD savings accounts and Coinbase isn't a bank. FDIC and SIPC insurance do not cover crypto you have borrowed.
This is not reassuring news for investors. Coinbase and SEC will need to meet at one time to discuss crypto lending products. A tweetstorm will not solve the problem.
