US stock exchange regulator threatens crypto exchange Coinbase! CEO speaks of "bizarre" behavior
The regulatory battle continues to heat up. Now the US Securities and Exchange Commission apparently has its eye on what is arguably the largest crypto exchange in the United States.
The news comes after five US states had sent individual notifications to the DeFi platform BlockFi in the past few weeks. Now Coinbase, an exchange for cryptocurrencies such as Bitcoin or Ethereum , is reportedly subject to regulatory scrutiny for its upcoming, high-yield "lend product".
Coinbase boss Brian Armstrong had a lot to say about this. The CEO describes the SEC's behavior as "bizarre".
Coinbase expresses frustration
Coinbase published a clearly worded blog post promoting the agency's threats. The title: “The SEC has told us that they are planning to sue us over Lend. We do not know, why."
Coinbase's Chief Legal Officer, Paul Grewal, said the agency issued a Wells Notice last week on the company's upcoming Lend product, despite Coinbase's “months of productive collaboration efforts ". A Wells Notice is a governmental letter announcing the preparation of enforcement actions.
The Coinbase Lend product aims to enable consumers to earn 4% APY on the USDC stablecoin as a starting point for selected interest-bearing assets. The blog states that the company is taking a proactive approach. One would first inform the SEC of intentions instead of launching the platform preventively. The blog post goes on to say that despite these efforts and satisfying reasonable demands by the SEC, the agency intends to file a lawsuit should Coinbase launch the Lend platform.
The article closes with the statement that the Lend platform will not be launched before October for the time being. It also affirms that “dialogue is at the heart of good regulation”. Unfortunately, it seems to have been a very one-sided conversation so far.
The SEC appears to be promoting a "asking for forgiveness rather than permission" policy.
It gets better
Coinbase CEO Brian Armstrong is currently also expressing his frustration - on Twitter. In a tweet storm of over twenty posts, Armstrong begins with "some really bizarre behaviors that recently came from the SEC ...".
Armstrong briefly recapitulates the blog post. The crux of the matter seems to be that the SEC describes the lending function as a security without providing any kind of elaboration or specification as to how or why that should be the case.
These circumstances could set a very interesting precedent for the latitude given to the SEC in how, what, and why the SEC determines what is and is not a security. So far, Coinbase's efforts to deal transparently and communicatively with the authority have not been rewarded.
It remains to be seen whether this will continue to be the case. As Armstrong aptly states at the end of his tweet:
"HOPEFULLY THE SEC WILL PROVIDE THE CLARITY THIS INDUSTRY DESERVES WITHOUT HARMING CONSUMERS AND BUSINESSES."