SEC Threatens Coinbase With Lawsuit Over Lending Product While Failing to Provide Clear Guidance for Crypto Industry

The SEC is threatening to sue Coinbase over a new digital asset lending product the crypto exchange is planning to unveil, but has stopped short of providing a reason for its decision.

According to a blogpost by Coinbase’s chief legal officer Paul Grewal, the crypto exchange received a notice from the SEC, advising of potential legal action in the event that the company goes ahead with introducing a digital asset lending feature. The new product, called Lend, would allow users to earn a yield on certain digital assets using the platform— the details of which were shared with the SEC earlier this year.

Since announcing the new feature, Coinbase amassed a waitlist of interested customers; but, in response, the SEC declared that such a product would be categorized as a security, subsequently opening a formal probe into the crypto exchange and issuing subpoenas demanding additional information. “They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why,” explained Coinbase CEO Brian Armstrong via a series of Twitter posts.

Coinbase, which maintains that it is adamant on following regulations, has joined a growing list of crypto exchanges that are allegedly experiencing grievances with lack of clear guidance from the SEC. “They are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors,” Armstrong continued. “Whatever their theory is here, it feels like a reach/land grab vs other regulators.

In the meantime, Grewal said the exchange would not go ahead with launching the new product until “at least October.” A number of cryptocurrencies descended on Wednesday, with bitcoin and ethereum both falling by more than 10%.

The SEC for its part, had a simple response to Armstrong’s concerns:

Information for this briefing was found via Coinbase and Twitter. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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