The US Securities and Exchange Commission (SEC) has issued a warning that it may open a lawsuit against cryptocurrency exchange Coinbase.
This will happen if the trading platform continues to promote its Lend project, which brings holders of stablecoins – that is, cryptocurrencies pegged to the value of the dollar – 4 percent of their annual savings.
The pressure from the regulator can seriously complicate the business of the largest American trading platform for cryptocurrencies and other companies that offer similar products to their clients. At the same time, some experts consider the requirements of the department unreasonable. We share the details.
Coinbase and SEC Conflict
Coinbase Chief Legal Officer Paul Greval announced the SEC threat on the company’s blog the day before. He noted that the company had been in talks with the regulator about Lend for six months, but then the Commission suddenly issued a warning about a possible trial last Wednesday. According to Decrypt, news of Lend’s launch surfaced back in June.
At the time, the company was promoting the new product as a way for cryptocurrency owners to make money on their deposits like bank deposits. At the same time, the representatives of Coinbase themselves declared the guarantee of the safety of deposits no worse than in traditional banks .
At the time of the announcement, there were no public actions from the SEC or other regulators. Lend’s terms were intended to apply only to the USDC stablecoin. At the same time, 4 percent per annum looked quite a conservative figure. For example, BlockFi already provides similar services at 8 percent per annum across a wide range of cryptocurrencies.
However, against the background of interest on deposits in US and worldwide banks, this is a huge figure. Still, in financial institutions, profitability most often does not exceed one percent, and this is a popular practice. Accordingly, in this case, Coinbase offers a much more profitable alternative, which puts banks in a disadvantageous light. In addition, the exchange essentially turns out to be a competitor to banks, because it is very easy to purchase stablecoins and send them to such a program.
In response to the threat from the SEC, Coinbase CEO Brian Armstrong said on Twitter that the financial regulator does not adhere to transparent rules for overseeing the digital asset industry. Instead, he «implements intimidation tactics discussed behind closed doors. » Here’s a translation of one of his tweets.
Look, we’re trying to keep the law. Sometimes the law is unclear. So if the SEC wants to publish a detailed guidance on regulation, we’ll be happy to follow it.
That is, Armstrong believes that the position of the Securities and Exchange Commission is unclear. In addition, their threat to sue the exchange is not entirely justified, because such an earnings program does not violate laws and regulations.
Armstrong insists that the Commission does not try to enter into dialogue with the exchange and instead uses its position to get what it wants.
But in this case, the SEC refuses to submit a written explanation of what is allowed and what is not. Instead, the regulator implements intimidation tactics discussed behind closed doors.
This means that the essence of the regulator’s claims to the representatives of the largest American crypto exchange is unclear. However, the demands of the officials are obvious – the program for making money on stablecoins should supposedly be closed.
The Coinbase CEO does not rule out that the exchange may meet with representatives of the Commission in court. While he sees the event as «the last resort,» Armstrong also hopes that in such a case, Coinbase can still receive clear instructions regarding its business.
If we meet in court, maybe then the SEC will provide clear regulations for the industry that have not yet been published. But regulation through litigation should be a last resort, not a daily routine.
Prominent cryptocurrency lawyer Preston Byrne tweeted that any product that promises return on investment is analogous to securities under the letter of the law and therefore subject to SEC regulation. But he added that other countries, such as the UK, have developed additional legal mechanisms to facilitate the operation of such projects, so the US should do the same.
The legal threat from the SEC is bad news for both Coinbase and the exchange’s customers. In addition, BlockFi is also under attack , which has already faced regulatory pressure in various regions of its operations. As you can see, the Commission is ready to take any measures so that analogs of banking services in the cryptosphere are not widespread.
At the same time, we believe that if something happens, restrictions will once again affect only the residents of the United States. We remind them that they are also prohibited from using various cryptocurrency exchanges outside the state and investing in new blockchain projects. So in this case, the position of the Americans in this matter is not to be envied.