Coinbase efforts to play hardball with the Securities and Exchange Commission didn't last too long. The cryptocurrency exchange had garnered the ire of the regulatory commission over its plans to launch a crypto lending product, with the SEC sending the company a Wells notice which indicated that the agency would sue Coinbase if they launched their crypto lending product called Lend.
Less than a couple weeks after publishing a defiant blog post titled "The SEC has told us it wants to sue us over Lend. We don’t know why." the company quietly announced over the weekend that it will not be launching the Lend product after all.
On Friday, the company quietly added an update to its launch post for Lend, detailing in part:
As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch the USDC APY program announced below. We have also discontinued the waitlist for this program as we turn our work to what comes next.
Lend was far from an anomaly in the crypto exchange world; investors can find similar functionality in platforms like Gemini, which allow users to lend their crypto holdings back to the exchange for the promise of earning interest rates that are much, much higher than traditional savings accounts offer. Coinbase planned to launch the Lend product with the functionality for users to stake the stablecoin USDC and earn (as a starting rate) 4% APY.
The SEC, which has long complained about the limited resources at its disposal, has pursued a limited set of cases against crypto products but doesn't seem to have been quite comfortable with the fact that users were essentially forfeiting custody of their coins to Coinbase and its partners. They also indicated to Coinbase that the Lend product did indeed involve a security. Coinbase, which has made the fact that it coordinates closely with the regulatory bodies part of its brand, had been trying to take things slowly while sticking to their belief that the product wasn't security-related.
2/ Millions of crypto holders have been earning yield on their assets over the last few years. It makes sense, if you want to lend out your funds, you can earn a return. Everyone seems happy.
— Brian Armstrong (@brian_armstrong) September 8, 2021
"The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion. Rather than get discouraged, we chose to continue taking things slowly. In June, we announced our Lend program publicly and opened a waitlist but did not set a public launch date. But once again, we got no explanation from the SEC. Instead, they opened a formal investigation," a recent Coinbase company blog post read.
The big question is what this means for the other crypto exchanges and whether this act signals the start of a more aggressive streak for SEC chief Gary Gensler's commission in the crypto world, especially in regards to DeFi mechanics.
Coinbase stock was dropping in intraday trading Monday, alongside a significant pullback in the price of bitcoin and other top cryptocurrencies.