The regulatory battle with DeFi is heating up. The SEC now seemingly has it’s eyes set on arguably the largest cryptocurrency exchange in the United States.
The news comes after five U.S. states sent individual notices to DeFi platform BlockFi in recent weeks. This week, reports have surfaced that Coinbase is facing regulatory scrutiny over it’s upcoming, yield-generating Coinbase Lend product.
Coinbase CEO Brian Armstrong had quite a bit to say about it, describing the SEC behavior as “sketchy”.
Coinbase Expresses Frustration
Coinbase issued a strongly-worded blog post that broke the word over the agency’s threats, titled “The SEC has told us it wants to sue us over Lend. We have no idea why.”
Posted by Coinbase Chief Legal Officer Paul Grewal, the post explains that the government agency issued a Wells notice last week regarding the company’s upcoming Lend product – despite what Coinbase describes as “months of effort by Coinbase to engage productively.” A Wells notice is a regulatory letter that notifies preparation of enforcement action.
The Coinbase Lend product intends to allow consumers to earn 4% APY on stablecoin USDC as a starting point for select interest-earning assets. The blog states that rather than preemptively launching the platform, the company took a proactive approach in advising the SEC regarding it’s intent first. The blog post continues on to state that despite these efforts, along with compliance with reasonable SEC requests, the agency intends to sue should Coinbase launch the Lend platform.
The post closes stating that for the time being, the Lend platform will not launch until at least October, reiterating that “dialogue is at the heart of good regulation.” Unfortunately, it seems to be a one-way conversation thus far.
The SEC is seemingly incentivizing an “ask for forgiveness, rather than permission” policy.
As crypto's total market cap continues to grow, regulatory question marks becoming increasingly apparent. | Source: CRYPTOCAP - TOTAL on TradingView.com
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It Doesn’t Stop There
Coinbase CEO Brian Armstrong took to Twitter to express some frustration as well. In a tweet thread spanning over twenty tweets long, Armstrong leads off with “some really sketchy behavior coming out of the SEC recently…”
Armstrong goes on to recap the blog post in brief, with the sticking point seeming to be that the SEC is describing the lending feature as a security, without providing any sort of elaboration or specification as to how or why that would be the case.
These circumstances could set a very interesting precedent moving forward on the leeway the SEC is given on how, what, and why the SEC determines what is and isn’t a security. To date, Coinbase’s efforts to be transparent and communicative with the agency don’t seem to be reaping rewards.
We’ll see if that continues to be the case. As Armstrong aptly states to close out his tweet thread, “hopefully the SEC steps up to create the clarity this industry deserves, without harming consumers and companies in the process.”