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Some sketchy behavior coming out of the SEC recently

123 points by Shank 5y ago

deleted 5y ago
[deleted]
gruez 5y ago
>Whatever their theory is here, it feels like a reach/land grab vs other regulators. That seems to be Matt Levine's read of the situation as well, a few weeks prior. >The SEC is not about “investor protection” broadly; it is about investor protection from scammy securities. If bad-faith actors speculate on the value of gold, the SEC can’t really stop them, because gold is not a security. The fact that crypto is rife with scams does not mean that the SEC has to address it; the SEC has to address it only if it is rife with securities scams. >Gensler argues — or at least asserts — that it is. But he is biased: He runs a regulatory organization, he is interested in crypto, he doesn’t like scams, so he wants to use his regulatory power to crack down on crypto scams. He might be tempted to expand that power, to treat borderline gray-area things as securities and crack down on them, even if they aren’t really securities. https://www.bloomberg.com/opinion/articles/2021-08-04/the-sec-has-its-eye-on-crypto https://www.bloomberg.com/opinion/articles/2021-08-04/the-se...
- seanhunter 5y ago
  I don't understand where people got this narrow interpretation of the SEC's mandate. The SECs mandate in the securities Act has 3 parts 1)Protecting investors 2)Facilitating capital formation 3)Orderly capital markets. It absolutely is about investor protection broadly. Check out 15 U.S.C 78aaa through 78lll https://www.law.cornell.edu/uscode/text/15/78aaa https://www.law.cornell.edu/uscode/text/15/78aaa
  - darksaints 5y ago
    The SECs mission is not that broad because other regulatory bodies regulate different types of instruments. For example, the FDIC is the agency that regulates most bank-origin instruments like CDs and savings accounts. FINRA regulates margin accounts. The Commodities and Futures Trading Commission regulates commodity-related instruments, including gold, forex, futures, etc.. And at least within the industry, it is pretty well known that there is an ongoing turf war between the SEC and the CFTC, with each encroaching on each other's regulatory authority in various scenarios. It's not hard to see that the SEC would encroach on other regulatory bodies as well. And that's why various experts like Matt Levine see this as the SEC stepping out of line: they have a very poor claim to authority to regulate these instruments.
    - seanhunter 5y ago
      Yup I know about the SEC vs CFTC turf war. I've actually had meetings with both of those regulators where they've staked overlapping claims to regulate certain things. As nice as it would be to have a clearer setup, the way financial regulations work in the US is that there are lots of areas of overlap (state vs federal as well as with multiple agencies) and if you're a regulated entity you have to keep all of the regulators satisfied. And even if you're not a regulated entity they can (in certain cases) just decide you are. For example if you make banking software believe it or not at some point the OCC will just decide you're important enough that you have regulatory obligations and they will examine you (I know about that case specifically through personal experience). I really don't see why you're saying they have a poor claim to regulate here. There is a clear investor protection angle and that's in their remit. Coin issuers can't claim that it's only qualified investors that are affected and the SEC has traditionally protected retail investors. Secondly the SEC could make a case through their remit on orderly markets and capital formation.
      - darksaints 5y ago
        All of the financial regulatory bodies are tasked with investor protection...that's not something unique to the SEC. The SEC has jurisdiction over securities and some types of markets. These aren't tradable entities, and if you can't trade it, it's definitely not a security, and there's no market to regulate either. The SEC may have jurisdiction over cryptocurrency markets and some types of cryptocurrencies, but this product is neither of those. It's an interest bearing lending account. There are far better equipped agencies for regulating these lending accounts than the SEC, with actual jurisdiction that makes sense. FINRA and the FDIC immediately spring to mind...they both regulate interest bearing lending accounts for retail investors. FINRA for retail investment accounts, FDIC for retail banking accounts.
yokem55 5y ago
I'm wondering if Coinbase's relationship with Circle is part of the issue? Returning yield on a token that you are sponsoring smells a bit more security-ish then commodity-ish.
deleted 5y ago
[deleted]
avalys 5y ago
The title is accurate, but it would be better written as: Coinbase CEO: “Some sketchy behavior coming out of the SEC recently”
figbert 5y ago
https://threadreaderapp.com/thread/1435439291715358721.html https://threadreaderapp.com/thread/1435439291715358721.html
graeme 5y ago
He mentions the law being unevenly enforced. Are there other american companies offering high yield lending/savings products, and which haven’t faced scrutiny? I know a bunch of offshore ones do, like Binance. And I checked and Nexo lets you earn interest on tokens, but not on Nexo’s own token. To which companies is Coinbase referring? I know the space is full of unreasonably high interest offers so I wouldn’t be surprised if the SEC has failed to act against some. But which ones match this fact pattern? Edit: someone below mentions earning yield on GUSD at Gemini. That does seem to be the same sort of thing. And sounds like Blockfi does as well. Could be more suits are in the works. SEC has announced nothing yet, this is Coinbase trying to get ahead of it.
- kinghajj 5y ago
  I know of at least BlockFi, which is based out of New Jersey.
  - graeme 5y ago
    Blockfi is facing action from multiple state securities regulators at the moment. Though, not the SEC. Do they have their own token and give interest on it? That seems to be the SEC’s issue with Coinbase’s proposal.
    - nivertech 5y ago
      No, it doesn't matter who issued the USDC token, in fact it doesn't matter what assets are used to earn yield on. It can be any money surrogate/medium of exchange/barter instead of the actual money, e.g. orange groves. Any company offering a yield product is ticking all the boxes in the Howey Test[1], and therefore offering a a security. Only the banks have an exception for CDs. [1] Howey Test 1. An investment of money 2. In a common enterprise 3. With the expectation of profit 4. To be derived from the efforts of others https://twitter.com/prestonjbyrne/status/1435452184607576066 https://twitter.com/prestonjbyrne/status/1435452184607576066 https://twitter.com/nivertech/status/1435445880396685314 https://twitter.com/nivertech/status/1435445880396685314
whoisninja 5y ago
Guy running a casino where the house is bunch of VCs and himself and retail are the losers calls SEC behavior sketchy haha
- ojbyrne 5y ago
  You should probably rephrase because it’s ambiguous whether “himself” is the house or one of the losers. Although maybe that ambiguity is actually accurate.
belltaco 5y ago
Link to the coinbase blog redirects to medium.com home page
SilasX 5y ago
Weird. I’ve been earning yield on the Gemini dollar at Gemini. Are they regulating that as a security? BlockFi (which I use as well) is also offering similar services and has informed users of ongoing SEC action to classify those offerings as securities. EDIT: actually that’s just state agencies.
- graeme 5y ago
  Thanks for posting that. Does sound like Gemini is doing the same thing. Wonder if they’ll face action?
  - Animats 5y ago
    Gemini is regulated as a bank/trust company in New York State. Coinbase is not.
    - graeme 5y ago
      Ah. So, as such, Gemini could offer a security, which Coinbase can not do?
seibelj 5y ago
A major reason for the success and growth of crypto is that it is permissionless (i.e. unregulated) finance. This sector is extremely high-margin, full of old boys' networks, licensed monopolies / oligopolies, it's opaque, confusing, and somehow this convinces mere mortals that the basic business of finance (deposits, lending, interest) is so complex that it must be kept far away from peasants. Meanwhile the average securities and annuity peddlers are not exactly the smartest people ("but at least they are licensed!"). Crypto is blowing the whole thing up. We are witnessing frauds and scams, but also a huge amount of innovation that I believe will change finance for the better. If you like using your bank and brokerage, keep doing it. But the brave souls building and using crypto finance are doing a very bold experiment, and I say let it continue.
- deleted 5y ago
  [deleted]
asdfaoeu 5y ago
> Ostensibly the SEC's goal is to protect investors and create fair markets. So who are they protecting here and where is the harm? People seem pretty happy to be earning yield on these various products, across lots of other crypto companies. People were probably quite happy earning yields with Bernie Madoff as well.
ac29 5y ago
Coinbase is being willfully naive here if they are pretending like they've never heard of the Howey test. Coinbase's Lend product pools USDC from customers, and lends them out to ??? who does ??? and pays Coinbase interest for it. Presumably the ???'s are "crypto traders" and "trades crypto, possibly with leverage", respectively. Those specific details dont matter, though. According to the SEC: "To determine whether a transaction involves an offering of 'securities,' courts employ a four-part test outlined by the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co. Under that test, a transaction qualifies as an offering of 'securities' if it involves: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profit, (4) to be derived from the efforts of others" [0] I'm not a lawyer or a securities regulator, but it seems hard to see why Coinbase Lend doesn't qualify as a security under those rules. [0] https://sgp.fas.org/crs/misc/R45301.pdf https://sgp.fas.org/crs/misc/R45301.pdf (coincidentially this PDF is about ICOs, but isnt directly related to the current SEC action against Coinbase).
- yokem55 5y ago
  > (1) an investment of money, Is usdc money?
  - deleted 5y ago
    [deleted]
  - nivertech 5y ago
    it's a money surrogate, and like almost anything else it can be used as a medium of exchange / means of payment / barter. "an investment of money" in the Howey test is not about literal money, it can be anything with monetary value, e.g. orange groves.
    - ALittleLight 5y ago
      I think you mean "e.g. orange groves". "i.e." is an abbreviation for "id est" meaning "That is" (or you can remember it as being like "In essence"). If orange groves were the only thing with monetary value then i.e. would be appropriate. If orange groves are an example of a thing with monetary value then you want "e.g." (for example).
georgewsinger 5y ago
Follow Elon: https://www.youtube.com/watch?v=cRNypdYQoWk&ab_channel=60Minutes https://www.youtube.com/watch?v=cRNypdYQoWk&ab_channel=60Min...
btown 5y ago
I may be confused, but https://www.fdic.gov/regulations/laws/rules/8000-6200.html https://www.fdic.gov/regulations/laws/rules/8000-6200.html literally defines notes, bonds, swaps, and evidence of indebtedness as securities. Just because Coinbase currently holds an asset of mine, doesn’t mean that if they offer me to use that to become a debt investor in a fund they’re running, that’s magically no longer a security, right? It seems very much within the SEC’s discretion. Sure, the SEC’s enforcement and communications are spotty, and they deserve to be called out on that, but why would Coinbase ever assume they wouldn’t consider this a security?
- darksaints 5y ago
  But these aren't notes or bonds or swaps or evidence of indebtedness. They're not tradable. This is a lot closer to a bank account, which is also an interest bearing instrument that is not tradable.
  - DenisM 5y ago
    Bank account can only be provided by a bank, in adherence with a million government rules for banks.
    - darksaints 5y ago
      Interest bearing lending accounts are widespread...you can find them at banks, brokerages, credit unions, and even grocery stores. They are not regulated by the SEC, but by other regulatory entities, which is the whole point that TFA is making.
      - toomuchtodo 5y ago
        These are all regulated by combinations of the OCC, the FDIC, NCUA, and state financial regulators.
gojomo 5y ago
Consenting, competent adults should be allowed to opt-out of having the SEC as their ‘white knight’. (Matt Levine also has a version of this idea, where he suggests people should, with sufficient effort, be allowes to sign a piece of paper to the effect of, “I’m an idiot & won’t sue if I lose all my money” and then put their money into whatever the hell they want –but I can’t find his canonical description of his proposal at the moment.)
- runawaybottle 5y ago
  That’s okay, we already had that experiment in 1929 and 2008. Consenting legal adults can crash the economy for everyone. Hell, just from 2008 Dodd-frank, banks are not allowed to invest without having very specific amounts of collateral (eg you better have a billion before you speculate with your customer’s billion).
  - gojomo 5y ago
    Lots of things are different from 1929 today! Why would the rules for highly regulated, specially-privileged-under-the-law banks have to do with what individual consenting adults should be allowed to invest in?
    - baq 5y ago
      Because those consenting individuals can break the economy for everyone, which happened in 1929 and 2008. Yes, this is exactly what the GP said, but really it says everything that needs to be said. If I don’t have any involvement in the financial market, a few consenting adults can still force the company I work for to shut down due to liquidity issues.
      - Dylan16807 5y ago
        What can they break that normal corporate investors couldn't? Requiring a percentage of collateral doesn't do anything to stop stupid investments. If the investment itself is harmful, then 10% reserve means you're still doing 90% as much damage.
diebeforei485 5y ago
A lot of brokers can lend out your shares (usually to short-sellers) and pay you interest on it. How is BTC any different from TSLA?
- Animats 5y ago
  Real brokers carry SIPC insurance in case the broker goes bust with assets lent out. They are also regulated by FINRA.
  - diebeforei485 5y ago
    First of all, I don't think SIPC covers loaned-out shares? See https://www.interactivebrokers.com/en/index.php?f=46942 https://www.interactivebrokers.com/en/index.php?f=46942 for example. In any case, digital currencies are outside SIPC's remit.
Animats 5y ago
More like sketchy behavior coming out of Coinbase. Coinbase terms: Acknowledgement of Risk. By opting into Lend, you are acknowledging the following: Lend is not a checking account nor a bank savings account, and Coinbase is not a bank. By participating in Lend, you are making a loan of your eligible Digital Currency to Coinbase, Coinbase is your counterparty and you will have only a contract claim against Coinbase for the return of Loaned Digital Currency. As with any loan transaction, you could lose all your Loaned Digital Currency if we are unable to repay your loan. Coinbase does not provide you with collateral for the Loaned Digital Currency. You acknowledge that while you have the right to make a Return Request at any time, if Coinbase becomes insolvent or bankrupt or is placed in receivership your Loaned Digital Currency may be lost. Your Loaned Digital Currency is not protected by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or other insurance. Coinbase may use Loaned Digital Currency in its sole discretion, including uses which generate returns for Coinbase in excess of the Lend APY, which Coinbase is entitled to as compensation for Lend. Any returns generated by the use of Loaned Digital Currency are not returned to you as part of Lend interest. Therefore, although the interest rate will be determined in accordance with Section 2, the interest rate is determined by Coinbase and Coinbase may have a conflict of interest with you in setting the Interest Rate. OK. So Coinbase wants to borrow your money, invest it in something else, not tell you what that something else is, and hopefully pay you back. In the real world, they're selling you a bond or commercial paper. That's a security.[1] Morrison and Forster lists these requirements for commercial paper that doesn't have to be registered as a security. - Negotiable (No) - Prime quality (No) - Eligible for discount at Federal Reserve banks (No) - Not ordinarily purchased by the general public (No) - Used to facilitate “current transactions” (No) - Maturity of nine months or less with no automatic roll-over. (No) Nope, doesn't qualify. Coinbase is trying to pretend to be a bank without qualifying as a bank. They have to know this; they're a public company and have now filed SEC filings for two whole quarters. [1] https://media2.mofo.com/documents/151203commercialpaperprograms.pdf https://media2.mofo.com/documents/151203commercialpaperprogr...
- MrWiffles 5y ago
  Thanks for this - I found it particularly enlightening. I viewed the Twitter thread thinking “damn SEC!” but now? While the SEC should probably be more transparent here, clearly CB is up to shenanigans, which justifies their threat of lawsuit.
kristjansson 5y ago
What is actually financed by crypto denominated loans? Who is paying the interest that’s remitted to crypto-denominated savers? AFAICT the chief borrowers seem to be other crypto-denominated savers initiating loans against their crypto, hence the apparent demand[0] for stablecoin denominated loans. So USDC savers on Coinbase may be much more exposed to BTC and other crypto assets / securities than they expect. If BTC goes way south and borrowers get called, USDC savers have only Coinbase’s promise of a peg to support them, and Coinbase/USDC may have less fiat reserves than expected, having sent some or much of it out on margin loans. [0] https://blockfi.com/rates/ https://blockfi.com/rates/
chemmail 5y ago
Coinbase: we not lending out money. Coinbase: We calling it Coinbase Lend.
mensetmanusman 5y ago
How many coins do we need? Also, at what point do we give up trying to protect citizens from losing their money on the N+1th coin of the week. Are we afraid of something like an inverted bank run, where FOMO crashes the real economy?
perilousacts 5y ago
protip: the SEC doesn't work for you. They work for big banks and are on the pay roll...
- rchaud 5y ago
  The big banks make up the majority of trading activity, so I imagine that would indeed be the case. * "big banks" I'm assuming is a blanket term covering institutional investors along w/ family wealth offices and pension funds.
Havoc 5y ago
They do seem rather aggressively lately. Not sure that’s a bad thing though. Certainly better than an outright ban
Animats 5y ago
OK, what's really going on here. Lots of people have US dollar balances with Coinbase. Right now, Coinbase can't use that money for their own purposes: USD Wallet. Your USD Wallet allows you to hold and transfer USD with your Coinbase Account as described below. In general, we will combine the balance of your USD Wallet with other customers’ balances and either hold those funds in a custodial account at a U.S. FDIC-insured bank or invest those funds in liquid investments, such as U.S. treasuries, in accordance with state money transmitter laws. Coinbase owns the interest or other earnings on these investments. Pooled customer funds are held apart from Coinbase’s corporate funds and Coinbase will neither use these funds for its operating expenses or any other corporate purposes. So there's all that juicy cash lying around that Coinbase can't touch without someone going to jail for theft. But if they can get you to turn on "Lend", they can get their fingers on your money and use it for their own purposes. That's what this is really all about. Now, remember that Coinbase is behind Tether. Tether is known to not have enough real dollars behind it. Coinbase is evasive about what assets actually back Tether. Tether holders are just creditors of Coinbase. So are people who enabled "Lend". So, by enabling "Lend", you have opted in to the risks of Tether. What could possibly go wrong?
- ahahahahah 5y ago
  > remember that Coinbase is behind Tether That's a really strange claim. Here's some less strange claims: Coinbase is behind USDC. Bitfinex is behind Tether. Tether and USDC are similar, and most of the rest of what you say is true of both. Tether and bitfinex are definitely shadier than Coinbase/USDC.
  - Animats 5y ago
    Oh, sorry! Tether has real problems, but yes, it's Bitfinex, not Coinbase-owned.

123 points by Shank 5y ago

deleted 5y ago

[deleted]

>Whatever their theory is here, it feels like a reach/land grab vs other regulators. That seems to be Matt Levine's read of the situation as well, a few weeks prior. >The SEC is not about “investor protection” broadly; it is about investor protection from scammy securities. If bad-faith actors speculate on the value of gold, the SEC can’t really stop them, because gold is not a security. The fact that crypto is rife with scams does not mean that the SEC has to address it; the SEC has to address it only if it is rife with securities scams. >Gensler argues — or at least asserts — that it is. But he is biased: He runs a regulatory organization, he is interested in crypto, he doesn’t like scams, so he wants to use his regulatory power to crack down on crypto scams. He might be tempted to expand that power, to treat borderline gray-area things as securities and crack down on them, even if they aren’t really securities. https://www.bloomberg.com/opinion/articles/2021-08-04/the-sec-has-its-eye-on-crypto https://www.bloomberg.com/opinion/articles/2021-08-04/the-se...

seanhunter 5y ago
I don't understand where people got this narrow interpretation of the SEC's mandate. The SECs mandate in the securities Act has 3 parts 1)Protecting investors 2)Facilitating capital formation 3)Orderly capital markets. It absolutely is about investor protection broadly. Check out 15 U.S.C 78aaa through 78lll https://www.law.cornell.edu/uscode/text/15/78aaa https://www.law.cornell.edu/uscode/text/15/78aaa
- darksaints 5y ago
  The SECs mission is not that broad because other regulatory bodies regulate different types of instruments. For example, the FDIC is the agency that regulates most bank-origin instruments like CDs and savings accounts. FINRA regulates margin accounts. The Commodities and Futures Trading Commission regulates commodity-related instruments, including gold, forex, futures, etc.. And at least within the industry, it is pretty well known that there is an ongoing turf war between the SEC and the CFTC, with each encroaching on each other's regulatory authority in various scenarios. It's not hard to see that the SEC would encroach on other regulatory bodies as well. And that's why various experts like Matt Levine see this as the SEC stepping out of line: they have a very poor claim to authority to regulate these instruments.
  - seanhunter 5y ago
    Yup I know about the SEC vs CFTC turf war. I've actually had meetings with both of those regulators where they've staked overlapping claims to regulate certain things. As nice as it would be to have a clearer setup, the way financial regulations work in the US is that there are lots of areas of overlap (state vs federal as well as with multiple agencies) and if you're a regulated entity you have to keep all of the regulators satisfied. And even if you're not a regulated entity they can (in certain cases) just decide you are. For example if you make banking software believe it or not at some point the OCC will just decide you're important enough that you have regulatory obligations and they will examine you (I know about that case specifically through personal experience). I really don't see why you're saying they have a poor claim to regulate here. There is a clear investor protection angle and that's in their remit. Coin issuers can't claim that it's only qualified investors that are affected and the SEC has traditionally protected retail investors. Secondly the SEC could make a case through their remit on orderly markets and capital formation.
    - darksaints 5y ago
      All of the financial regulatory bodies are tasked with investor protection...that's not something unique to the SEC. The SEC has jurisdiction over securities and some types of markets. These aren't tradable entities, and if you can't trade it, it's definitely not a security, and there's no market to regulate either. The SEC may have jurisdiction over cryptocurrency markets and some types of cryptocurrencies, but this product is neither of those. It's an interest bearing lending account. There are far better equipped agencies for regulating these lending accounts than the SEC, with actual jurisdiction that makes sense. FINRA and the FDIC immediately spring to mind...they both regulate interest bearing lending accounts for retail investors. FINRA for retail investment accounts, FDIC for retail banking accounts.

yokem55 5y ago

I'm wondering if Coinbase's relationship with Circle is part of the issue? Returning yield on a token that you are sponsoring smells a bit more security-ish then commodity-ish.

deleted 5y ago

[deleted]

avalys 5y ago

The title is accurate, but it would be better written as: Coinbase CEO: “Some sketchy behavior coming out of the SEC recently”

figbert 5y ago

https://threadreaderapp.com/thread/1435439291715358721.html https://threadreaderapp.com/thread/1435439291715358721.html

graeme 5y ago

He mentions the law being unevenly enforced. Are there other american companies offering high yield lending/savings products, and which haven’t faced scrutiny? I know a bunch of offshore ones do, like Binance. And I checked and Nexo lets you earn interest on tokens, but not on Nexo’s own token. To which companies is Coinbase referring? I know the space is full of unreasonably high interest offers so I wouldn’t be surprised if the SEC has failed to act against some. But which ones match this fact pattern? Edit: someone below mentions earning yield on GUSD at Gemini. That does seem to be the same sort of thing. And sounds like Blockfi does as well. Could be more suits are in the works. SEC has announced nothing yet, this is Coinbase trying to get ahead of it.

kinghajj 5y ago
I know of at least BlockFi, which is based out of New Jersey.
- graeme 5y ago
  Blockfi is facing action from multiple state securities regulators at the moment. Though, not the SEC. Do they have their own token and give interest on it? That seems to be the SEC’s issue with Coinbase’s proposal.
  - nivertech 5y ago
    No, it doesn't matter who issued the USDC token, in fact it doesn't matter what assets are used to earn yield on. It can be any money surrogate/medium of exchange/barter instead of the actual money, e.g. orange groves. Any company offering a yield product is ticking all the boxes in the Howey Test[1], and therefore offering a a security. Only the banks have an exception for CDs. [1] Howey Test 1. An investment of money 2. In a common enterprise 3. With the expectation of profit 4. To be derived from the efforts of others https://twitter.com/prestonjbyrne/status/1435452184607576066 https://twitter.com/prestonjbyrne/status/1435452184607576066 https://twitter.com/nivertech/status/1435445880396685314 https://twitter.com/nivertech/status/1435445880396685314

whoisninja 5y ago

Guy running a casino where the house is bunch of VCs and himself and retail are the losers calls SEC behavior sketchy haha

ojbyrne 5y ago
You should probably rephrase because it’s ambiguous whether “himself” is the house or one of the losers. Although maybe that ambiguity is actually accurate.

belltaco 5y ago

Link to the coinbase blog redirects to medium.com home page

SilasX 5y ago

Weird. I’ve been earning yield on the Gemini dollar at Gemini. Are they regulating that as a security? BlockFi (which I use as well) is also offering similar services and has informed users of ongoing SEC action to classify those offerings as securities. EDIT: actually that’s just state agencies.

graeme 5y ago
Thanks for posting that. Does sound like Gemini is doing the same thing. Wonder if they’ll face action?
- Animats 5y ago
  Gemini is regulated as a bank/trust company in New York State. Coinbase is not.
  - graeme 5y ago
    Ah. So, as such, Gemini could offer a security, which Coinbase can not do?

seibelj 5y ago

A major reason for the success and growth of crypto is that it is permissionless (i.e. unregulated) finance. This sector is extremely high-margin, full of old boys' networks, licensed monopolies / oligopolies, it's opaque, confusing, and somehow this convinces mere mortals that the basic business of finance (deposits, lending, interest) is so complex that it must be kept far away from peasants. Meanwhile the average securities and annuity peddlers are not exactly the smartest people ("but at least they are licensed!"). Crypto is blowing the whole thing up. We are witnessing frauds and scams, but also a huge amount of innovation that I believe will change finance for the better. If you like using your bank and brokerage, keep doing it. But the brave souls building and using crypto finance are doing a very bold experiment, and I say let it continue.

deleted 5y ago
[deleted]

asdfaoeu 5y ago

> Ostensibly the SEC's goal is to protect investors and create fair markets. So who are they protecting here and where is the harm? People seem pretty happy to be earning yield on these various products, across lots of other crypto companies. People were probably quite happy earning yields with Bernie Madoff as well.

ac29 5y ago

Coinbase is being willfully naive here if they are pretending like they've never heard of the Howey test. Coinbase's Lend product pools USDC from customers, and lends them out to ??? who does ??? and pays Coinbase interest for it. Presumably the ???'s are "crypto traders" and "trades crypto, possibly with leverage", respectively. Those specific details dont matter, though. According to the SEC: "To determine whether a transaction involves an offering of 'securities,' courts employ a four-part test outlined by the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co. Under that test, a transaction qualifies as an offering of 'securities' if it involves: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profit, (4) to be derived from the efforts of others" [0] I'm not a lawyer or a securities regulator, but it seems hard to see why Coinbase Lend doesn't qualify as a security under those rules. [0] https://sgp.fas.org/crs/misc/R45301.pdf https://sgp.fas.org/crs/misc/R45301.pdf (coincidentially this PDF is about ICOs, but isnt directly related to the current SEC action against Coinbase).

yokem55 5y ago
> (1) an investment of money, Is usdc money?
- deleted 5y ago
  [deleted]
- nivertech 5y ago
  it's a money surrogate, and like almost anything else it can be used as a medium of exchange / means of payment / barter. "an investment of money" in the Howey test is not about literal money, it can be anything with monetary value, e.g. orange groves.
  - ALittleLight 5y ago
    I think you mean "e.g. orange groves". "i.e." is an abbreviation for "id est" meaning "That is" (or you can remember it as being like "In essence"). If orange groves were the only thing with monetary value then i.e. would be appropriate. If orange groves are an example of a thing with monetary value then you want "e.g." (for example).

georgewsinger 5y ago

Follow Elon: https://www.youtube.com/watch?v=cRNypdYQoWk&ab_channel=60Minutes https://www.youtube.com/watch?v=cRNypdYQoWk&ab_channel=60Min...

btown 5y ago

I may be confused, but https://www.fdic.gov/regulations/laws/rules/8000-6200.html https://www.fdic.gov/regulations/laws/rules/8000-6200.html literally defines notes, bonds, swaps, and evidence of indebtedness as securities. Just because Coinbase currently holds an asset of mine, doesn’t mean that if they offer me to use that to become a debt investor in a fund they’re running, that’s magically no longer a security, right? It seems very much within the SEC’s discretion. Sure, the SEC’s enforcement and communications are spotty, and they deserve to be called out on that, but why would Coinbase ever assume they wouldn’t consider this a security?

darksaints 5y ago
But these aren't notes or bonds or swaps or evidence of indebtedness. They're not tradable. This is a lot closer to a bank account, which is also an interest bearing instrument that is not tradable.
- DenisM 5y ago
  Bank account can only be provided by a bank, in adherence with a million government rules for banks.
  - darksaints 5y ago
    Interest bearing lending accounts are widespread...you can find them at banks, brokerages, credit unions, and even grocery stores. They are not regulated by the SEC, but by other regulatory entities, which is the whole point that TFA is making.
    - toomuchtodo 5y ago
      These are all regulated by combinations of the OCC, the FDIC, NCUA, and state financial regulators.

gojomo 5y ago

Consenting, competent adults should be allowed to opt-out of having the SEC as their ‘white knight’. (Matt Levine also has a version of this idea, where he suggests people should, with sufficient effort, be allowes to sign a piece of paper to the effect of, “I’m an idiot & won’t sue if I lose all my money” and then put their money into whatever the hell they want –but I can’t find his canonical description of his proposal at the moment.)

runawaybottle 5y ago
That’s okay, we already had that experiment in 1929 and 2008. Consenting legal adults can crash the economy for everyone. Hell, just from 2008 Dodd-frank, banks are not allowed to invest without having very specific amounts of collateral (eg you better have a billion before you speculate with your customer’s billion).
- gojomo 5y ago
  Lots of things are different from 1929 today! Why would the rules for highly regulated, specially-privileged-under-the-law banks have to do with what individual consenting adults should be allowed to invest in?
  - baq 5y ago
    Because those consenting individuals can break the economy for everyone, which happened in 1929 and 2008. Yes, this is exactly what the GP said, but really it says everything that needs to be said. If I don’t have any involvement in the financial market, a few consenting adults can still force the company I work for to shut down due to liquidity issues.
    - Dylan16807 5y ago
      What can they break that normal corporate investors couldn't? Requiring a percentage of collateral doesn't do anything to stop stupid investments. If the investment itself is harmful, then 10% reserve means you're still doing 90% as much damage.

diebeforei485 5y ago

A lot of brokers can lend out your shares (usually to short-sellers) and pay you interest on it. How is BTC any different from TSLA?

Animats 5y ago
Real brokers carry SIPC insurance in case the broker goes bust with assets lent out. They are also regulated by FINRA.
- diebeforei485 5y ago
  First of all, I don't think SIPC covers loaned-out shares? See https://www.interactivebrokers.com/en/index.php?f=46942 https://www.interactivebrokers.com/en/index.php?f=46942 for example. In any case, digital currencies are outside SIPC's remit.

Animats 5y ago

More like sketchy behavior coming out of Coinbase. Coinbase terms: Acknowledgement of Risk. By opting into Lend, you are acknowledging the following: Lend is not a checking account nor a bank savings account, and Coinbase is not a bank. By participating in Lend, you are making a loan of your eligible Digital Currency to Coinbase, Coinbase is your counterparty and you will have only a contract claim against Coinbase for the return of Loaned Digital Currency. As with any loan transaction, you could lose all your Loaned Digital Currency if we are unable to repay your loan. Coinbase does not provide you with collateral for the Loaned Digital Currency. You acknowledge that while you have the right to make a Return Request at any time, if Coinbase becomes insolvent or bankrupt or is placed in receivership your Loaned Digital Currency may be lost. Your Loaned Digital Currency is not protected by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or other insurance. Coinbase may use Loaned Digital Currency in its sole discretion, including uses which generate returns for Coinbase in excess of the Lend APY, which Coinbase is entitled to as compensation for Lend. Any returns generated by the use of Loaned Digital Currency are not returned to you as part of Lend interest. Therefore, although the interest rate will be determined in accordance with Section 2, the interest rate is determined by Coinbase and Coinbase may have a conflict of interest with you in setting the Interest Rate. OK. So Coinbase wants to borrow your money, invest it in something else, not tell you what that something else is, and hopefully pay you back. In the real world, they're selling you a bond or commercial paper. That's a security.[1] Morrison and Forster lists these requirements for commercial paper that doesn't have to be registered as a security. - Negotiable (No) - Prime quality (No) - Eligible for discount at Federal Reserve banks (No) - Not ordinarily purchased by the general public (No) - Used to facilitate “current transactions” (No) - Maturity of nine months or less with no automatic roll-over. (No) Nope, doesn't qualify. Coinbase is trying to pretend to be a bank without qualifying as a bank. They have to know this; they're a public company and have now filed SEC filings for two whole quarters. [1] https://media2.mofo.com/documents/151203commercialpaperprograms.pdf https://media2.mofo.com/documents/151203commercialpaperprogr...

MrWiffles 5y ago
Thanks for this - I found it particularly enlightening. I viewed the Twitter thread thinking “damn SEC!” but now? While the SEC should probably be more transparent here, clearly CB is up to shenanigans, which justifies their threat of lawsuit.

kristjansson 5y ago

What is actually financed by crypto denominated loans? Who is paying the interest that’s remitted to crypto-denominated savers? AFAICT the chief borrowers seem to be other crypto-denominated savers initiating loans against their crypto, hence the apparent demand[0] for stablecoin denominated loans. So USDC savers on Coinbase may be much more exposed to BTC and other crypto assets / securities than they expect. If BTC goes way south and borrowers get called, USDC savers have only Coinbase’s promise of a peg to support them, and Coinbase/USDC may have less fiat reserves than expected, having sent some or much of it out on margin loans. [0] https://blockfi.com/rates/ https://blockfi.com/rates/

chemmail 5y ago

Coinbase: we not lending out money. Coinbase: We calling it Coinbase Lend.

mensetmanusman 5y ago

How many coins do we need? Also, at what point do we give up trying to protect citizens from losing their money on the N+1th coin of the week. Are we afraid of something like an inverted bank run, where FOMO crashes the real economy?

perilousacts 5y ago

protip: the SEC doesn't work for you. They work for big banks and are on the pay roll...

rchaud 5y ago
The big banks make up the majority of trading activity, so I imagine that would indeed be the case. * "big banks" I'm assuming is a blanket term covering institutional investors along w/ family wealth offices and pension funds.

Havoc 5y ago

They do seem rather aggressively lately. Not sure that’s a bad thing though. Certainly better than an outright ban

Animats 5y ago

OK, what's really going on here. Lots of people have US dollar balances with Coinbase. Right now, Coinbase can't use that money for their own purposes: USD Wallet. Your USD Wallet allows you to hold and transfer USD with your Coinbase Account as described below. In general, we will combine the balance of your USD Wallet with other customers’ balances and either hold those funds in a custodial account at a U.S. FDIC-insured bank or invest those funds in liquid investments, such as U.S. treasuries, in accordance with state money transmitter laws. Coinbase owns the interest or other earnings on these investments. Pooled customer funds are held apart from Coinbase’s corporate funds and Coinbase will neither use these funds for its operating expenses or any other corporate purposes. So there's all that juicy cash lying around that Coinbase can't touch without someone going to jail for theft. But if they can get you to turn on "Lend", they can get their fingers on your money and use it for their own purposes. That's what this is really all about. Now, remember that Coinbase is behind Tether. Tether is known to not have enough real dollars behind it. Coinbase is evasive about what assets actually back Tether. Tether holders are just creditors of Coinbase. So are people who enabled "Lend". So, by enabling "Lend", you have opted in to the risks of Tether. What could possibly go wrong?

ahahahahah 5y ago
> remember that Coinbase is behind Tether That's a really strange claim. Here's some less strange claims: Coinbase is behind USDC. Bitfinex is behind Tether. Tether and USDC are similar, and most of the rest of what you say is true of both. Tether and bitfinex are definitely shadier than Coinbase/USDC.
- Animats 5y ago
  Oh, sorry! Tether has real problems, but yes, it's Bitfinex, not Coinbase-owned.