SEC to sue Coinbase Global Inc if the crypto exchange goes ahead with plans to launch a program allowing users to earn interest by lending crypto assets. The SEC has issued Coinbase with a Wells notice, an official notice of it intention to sue the company in court.
The company’s chief legal officer, Paul Grewal stated in a blog post that Coinbase would delay the launch of its ‘Lend’ product until at least October as a result.
Programs that allow owners of cryptocurrencies to lend these in return for interest are becoming more common around the world, but some regulators, particularly in the United States have started to raise concerns, arguing that such products should comply with existing securities laws.
What led the SEC to sue Coinbase over Lend?
Coinbase has been proactively engaging with the SEC about Lend for nearly six months. They have been eager to hear their perspective as they explore innovative ways for their customers to gain more financial empowerment on Coinbase. Specifically for Lend, that will allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC).
Coinbase could have simply launched the product but chose not to. Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month. But Coinbase believes in the value of open and substantive dialogue with their regulators. So they took Lend to the SEC first.
Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem. Last week’s Wells notice states that the SEC would rather skip those basic regulatory steps and go right to litigation. They’ve offered Coinbase the chance to submit a written defence of Lend, but that would be futile when they don’t know the reasons behind the SEC’s concerns.
The net result of all this is that we will not be launching Lend until at least October. Coinbase will continue to welcome additional regulatory clarity to serve unnecessarily stifle new products that customers want and that Coinbase and others can safely deliver. The company has been under scrutiny before but this time Coinbase has reassured to keep its customers informed at every step of the process.