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The SEC has told us it wants to sue us over Lend. We don’t know why

437 points by jbegley 5y ago

imwillofficial 5y ago
Leave it to a bunch of programmers to believe they have hit takes on SEC litigation. In related news, my dentist told me I should use kotlin for my next project.
darawk 5y ago
To everyone saying "Well it's just obviously a security", you may well be right. But securities law and the Howey test are actually pretty complicated. If the SEC has a rationale for why this product is a security, that's great, they should share it. It's possible Brian is being dishonest in his presentation of their interaction. It's possible the SEC did give him a rationale and he just didn't like it. But if we take what he's saying at face value, the SEC's behavior here is unacceptable for a regulator, regardless of what you think of the crypto industry.
ErikVandeWater 5y ago
After reading the description of Coinbase Lend in this article I have no idea what it is.
Operyl 5y ago
It looks like the entire blog got deleted? https://blog.coinbase.com/ https://blog.coinbase.com/
- slenk 5y ago
  That's probably not a good sign.
  - Ericson2314 5y ago
    Guess they figured out why :D
- Ericson2314 5y ago
  Hah! All the more spicy a news item her. Hope this post stays up.
- gerikson 5y ago
  It works for me. It's a Medium joint, so if you have JavaScript blocked you won't see zip.
  - busymom0 5y ago
    I have JS enabled but still doesn't show for me. Just redirects to medium.
    - deleted 5y ago
      [deleted]
- dheera 5y ago
  "Last Wednesday, after months of effort by Coinbase to engage productively, the SEC gave us what’s called a Wells notice about our planned Coinbase Lend program. A Wells notice is the official way a regulator tells a company that it intends to sue the company in court. As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it. Background Coinbase has been proactively engaging with the SEC about Lend for nearly six months. We’ve been eager to hear their perspective as we explore innovative ways for our customers ... " from https://www.cryptocraft.com/news/1105897-the-sec-has-told-us-it-wants-to https://www.cryptocraft.com/news/1105897-the-sec-has-told-us...
- isatty 5y ago
  PR post that backfired. This is hilarious I wonder what they thought was going to happen.
  - deleted 5y ago
    [deleted]
- jyriand 5y ago
  It opens on Medium app for me and I can see the post just fine.
  - deleted 5y ago
    [deleted]
  - KingOfCoders 5y ago
    Is the Medium app caching? (And it does a redirect to medium.com not an error message, perhaps the Medium app doesn't have the feature of redirection and the blog post is still there, can't curl b/c of Cloudflare)
jrochkind1 5y ago
Seems to be gone from the internet. Can't find it in archive.today or archive.org either. reddit comment thread: https://www.reddit.com/r/CryptoCurrency/comments/pk2rjl/coinbase_the_sec_has_told_us_it_wants_to_sue_us/ https://www.reddit.com/r/CryptoCurrency/comments/pk2rjl/coin... Which points to a tweet thread from Brian Armstrong of Coinbase that is still there for now.... https://twitter.com/brian_armstrong/status/1435440998054653959 https://twitter.com/brian_armstrong/status/14354409980546539... unrolled (and probably will still be there even if tweets deleted?) https://threadreaderapp.com/thread/1435440998054653959.html https://threadreaderapp.com/thread/1435440998054653959.html
- pgrote 5y ago
  Someone snagged an image. https://www.ilbe.com/view/11365594888 https://www.ilbe.com/view/11365594888
  - gomox 5y ago
    Doesn't work (cloudflare error)
  - nightpool 5y ago
    Here's another copy: https://postimg.cc/kBRq5b18 https://postimg.cc/kBRq5b18
  - joering2 5y ago
    Their whole blog is gone https://blog.coinbase.com https://blog.coinbase.com
  - nabakin 5y ago
    https://medium.com/@coinbaseblog?p=a3a1b6507009 https://medium.com/@coinbaseblog?p=a3a1b6507009 blog.coinbase.com is gone but post is still up on medium. Maybe we DDOS'd it?
- busymom0 5y ago
  Just a few months ago, I posted a similar thing regarding SEC suing the Decentralized Content Platform LBRY Over $11M in Token Sales. The SEC said LBRY sold unregistered securities: https://www.coindesk.com/markets/2021/03/30/us-government-sues-decentralized-content-platform-lbry-over-11m-in-token-sales/ https://www.coindesk.com/markets/2021/03/30/us-government-su...
fabiancook 5y ago
damn
busymom0 5y ago
Hmmm, the link just redirects to medium's home page for some reason.
- anigbrowl 5y ago
  I can't believe anyone hosts their stuff on Medium. It's an increasingly trash platform; you go to some website.com and then get n announcement that you've viewed too many medium stories this month. That didn't happen with this specific story, but the fact that Coindesk a relying on someone else to host their blog creates a poor impression - why would I trust their security or anything else, before I get near their financial products? Strange decision. Incidentally, I do think the SEC owes people clarity in matters of legal reasoning, but am not sure Coinbase is being fully forthright with readers here based on various other observations in the thread.
throw123123123 5y ago
Interesting that they had to delete it. I have it on my cache!
- serial_dev 5y ago
  It's still available on https://medium.com/@coinbaseblog https://medium.com/@coinbaseblog
  - julianz 5y ago
    You can see the teasers for the articles, but clicking on one goes to the Medium homepage.
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elliotec 5y ago
I see it here: https://medium.com/@coinbaseblog https://medium.com/@coinbaseblog
- deleted 5y ago
  [deleted]
- yla92 5y ago
  Weird. I see the post in the link above as well but when I click the link, it got redirected to medium.com Edit: if i click "Read more" at the end of the article, I am able to see the whole post.
uncomputation 5y ago
I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantly just makes me feel like they’re playing a PR game. Seeing as they are already offering APY on staked Ethereum, I don’t see “concern” reflected in their actions. Seems like they are trying to get out to the public before the SEC does to farm some good will.
- bpodgursky 5y ago
  Brian's concern in the tweet thread is that a lot of other companies are already providing lending services without SEC action, putting Coinbase at a disadvantage. The rule should be applied across the industry in a standard manner, no matter which direction the SEC rules, and it is apparently not being applied consistently currently.
  - seehafer 5y ago
    Are the other companies already providing lending services public? Public companies get orders of magnitude more scrutiny from SEC relative to private companies.
    - ac29 5y ago
      Other US companies providing similar products include Gemini, Kraken, and BlockFi. I dont think any of them are public. BlockFi's lending product has already been banned by several state regulatory agencies, but if they've been sued or warned by the SEC, I dont think thats been made public.
      - seehafer 5y ago
        Right. My point is that many federal agencies have mandates that dictate where they focus. For instance the SEC may come after any privately-owned startup, after the fact, if there’s overwhelming evidence of fraud (see: Theranos). But when you go public you enter into a whole new level of scrutiny, because regulating public markets is why the SEC even exists.
bpodgursky 5y ago
I would like to think that even the most crypto-skeptical here, those who wish the entire ecosystem would collapse in flames, would agree that the SEC and other regulatory bodies need to operate with transparent rules, making it clear when and why a company is violating the law. Operating short of that is not, by conventional definition, operating under the rule of law. It seems pretty clear that the SEC is not currently meeting those standards, and that needs to be fixed. Whether or not the target is one we are currently sympathetic towards.
- ivalm 5y ago
  They are operating by transparent rules. Howey test has been on the books since 1946: 1. The existence of an investment contract 2. The formation of a common enterprise 3. A promise of profits by the issuer 4. The use of a third party to promote the offering
  - bpodgursky 5y ago
    At minimum, if that was true, Coinbase's competitors would not be freely operating the same service without SEC action.
    - ivalm 5y ago
      Coinbase competitors are largely operating in legally gray/black zone. Regulators do try to crack down and will likely to continue these efforts.
      - askmike 5y ago
        And in crypto SEC is usually late to enforce. They only last week cracked down on the Bitconnect ponzi, which collapsed in January 2018 (that's an eternity in crypto)
    - skybrian 5y ago
      That might change. Maybe they're going after Coinbase first? Making an argument based on SEC's action or inaction assumes you have a good model of how the SEC makes decisions. I sure don't. Do you?
peterbonney 5y ago
“We have no idea why the SEC intends to sue us! It is a complete mystery.” (Later in the post…) “All we’ve done is create a thing that people can trade which we are moving towards selling to investors against specific SEC advice to the contrary, but it is definitely not a security and as a result it is completely fine even though we have not complied with SEC regulations in any way with respect to it.” A mystery indeed…
- seibelj 5y ago
  Coinbase wants to know the legal rationale as to why it's a security, but SEC is stonewalling them and goading them to get into a legal fight. The opposite of "talk to us, come in" that the SEC claims the crypto industry refuses to do.
  - peterbonney 5y ago
    It is clear from their own blog post that they have communicated with the SEC in considerable detail, and the SEC has told them in no uncertain terms not to proceed. It sounds to me like the SEC welcomed the discussion, it’s just that Coinbase doesn’t like the answer they got.
    - seibelj 5y ago
      The blog post says they did not give a rationale. That is the entire essence of the post. Did you read the post?
      - peterbonney 5y ago
        They repeatedly refer to lengthy sets of questions they received from the SEC, both in person and in writing. If you don’t think that is the SEC communicating their “rationale” for a decision and offering insight into what acceptable alternatives might look like then you obviously haven’t dealt with the SEC, nor do you understand what it is that they do. (I actually do have some relevant experience here - I was a partner at an alternative investment manager for 12 years.)
uniclaude 5y ago
As dangerous as it sounds for the industry, this article tells us they’ve discussed with the SEC without telling us what was said on their side. It’s difficult to share their confusion if we don’t know what they have fed the regulator. Common sense makes it sound like Lend is clearly not about securities, but the SEC has generally been looking for settlements or discussion instead of straight litigation. Why the change of motus operandi? Is it because Coinbase is big and it would make an example, or maybe somewhere in Lend there’s a business model that makes the product act like a security? Who knows at this point? More information from Coinbase would help us empathize.
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fogof 5y ago
> They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves ... These two cases are from 1946 and 1990. Trying to make out like Howey is some obscure precedent from decades ago which the SEC is nitpicking over. The Howey test is the test applied to determine if something is an investment contract.
- onlyrealcuzzo 5y ago
  It's also like saying - I can't believe they're not letting us operate an Atlantic Slave Trade - because of some supreme court cases from decades ago. Why should the decades matter? Supreme court cases matter...
  - cscurmudgeon 5y ago
    Or the US constitution, centuries old.
  - ternaryoperator 5y ago
    That's a very poor analogy. It's inflammatory and disrespectful to put a trivial disagreement over investment classification on the same footing as the slave trade, and it's not factual either. Slave trade was not abolished by the Supreme Court, but by an act of Congress [0] and later by presidential decree [1]. [0] https://www.history.com/this-day-in-history/congress-abolishes-the-african-slave-trade https://www.history.com/this-day-in-history/congress-abolish... [1] Emancipation Proclamation
    - dehrmann 5y ago
      Nit: the Emancipation Proclamation only freed slaves in states rebelling against the union. Slavery was perfectly legal in Kentucky until December 18, 1865.
      - ternaryoperator 5y ago
        That is just a nit, as you say. The point is that the Supreme Court had nothing to do with ending the slave trade.
Aunche 5y ago
From the Coinbase page about Lend: >Lend your crypto to earn 4% APY >Your principal is guaranteed This definitely seems fishy. I don't see how this is possible unless if their position isn't levered. However, if they aren't levered, then why can't they just lend USDC themselves?
- runawaybottle 5y ago
  Someone correct me if I’m wrong, but I don’t believe banks are allowed to lever at the multiples necessary to offer a 4% interest rate (the collateral requirements are prohibitively too high). Coinbase is not a bank and doesn’t have to play by these rules.
  - cwyers 5y ago
    > Coinbase is not a bank and doesn’t have to play by these rules. Which is why this whole thing is such bullshit. Coinbase: Hey, SEC, we're just giving you a heads-up that we're going to start doing something that's not in your jurisdiction. It's a loan! SEC: Oh, so you're doing banking? Coinbase: Nope, we're not a bank, we don't have to follow banking regulations. SEC: ...get back in here.
- ac29 5y ago
  Coinbase isn't making a return via leveraged treasury bonds or something. They are lending the money out presumably to crypto traders, DeFi schemes, etc. If someone thinks they they can make a 100% return on borrowed money, they absolutely should borrow at 10% (or whatever Coinbase's target is for their risk-adjusted cut after paying 4% to their not-investors). The whole space is so opaque and unregulated that it seems fairly clear that people with big accounts can, and do make market moving trades frequently. You might ask, why would someone want to pay huge interest on stablecoins when money is so cheap to borrow from traditional finance now? Answer: the exchanges that do most of the action are offshore and probably nearly unbankable. FTX getting 1B of Tether several times in a week is business as usual for them (happened this past week), but its almost certainly impossible for them to get any Bank to do a 1B USD transfer without paperwork they cant provide.
- 5y ago
arthurcolle 5y ago
coinbase should figure out why so many people are having problems with its withdrawal functionality before trying new products
zxcvbn4038 5y ago
Coinbase is even shifter then PayPal. It took several months and numerous support tickets before they clarified that they take a percentage of all ACH withdrawals regardless if it is cash you deposited or proceeds of a crypto sale. If you take money out you pay them a percentage. They try really to hide that in their pricing matrix. Every time I asked about it I would either get a form letter pointing me to the pricing matrix, or a form letter explaining my bank may charge a fee for ACH. If I asked in a way that was clear that I had read the matrix already and verified my bank charged no ACH fees - they would stop responding. I think some manager was closing stale tickets and they gave me the exact answer.
- hackingforfun 5y ago
  Coinbase Pro [1] definitely has free ACH deposits and withdrawals, i.e. see the Fiat Deposit (Add Cash) and Withdrawal Fees table here [2]. That said I have heard that Coinbase does need to get their support in order, although that is surprising that with Coinbase.com (I'm guessing that's what you used) they would charge you to withdrawal cash. When buying or selling crypto on Coinbase.com vs Coinbase Pro, the trading fees are for sure lower on Coinbase Pro. However, this applies to crypto exchanges in general when you don't use their "advanced" interfaces (which are basically more like brokerage accounts with market / limit / stop orders, vs just simple buy / sell interfaces). Gemini is another offender in that regard, i.e. if you don't use their ActiveTrader interface, their fees are quite a bit higher [3]. [1] https://pro.coinbase.com https://pro.coinbase.com [2] https://help.coinbase.com/en/pro/trading-and-funding/trading-rules-and-fees/fees https://help.coinbase.com/en/pro/trading-and-funding/trading... [3] https://www.gemini.com/fees https://www.gemini.com/fees
  - encryptluks2 5y ago
    Support in order = they ignore support tickets for months or just delete them. They are acting like a bank essentially. Imagine going to or calling your bank and no one being home for months.
jtchang 5y ago
I mean why not go after Coinbase? The argument that everyone else is doing it why not go after them doesn't hold much water. Sometimes it makes sense to go after the biggest fish first. Also, is Coinbase saying Lend isn't an investment contract? It sure sounds like one to me. Lend my crypto to Coinbase and I get a 4% return? I like the idea but it sure sounds like an investment contract to me.
- JohnJamesRambo 5y ago
  To me it sounds like banks can’t compete and just keep the 4%, so now they have the SEC go after their competition that can. I don’t see the difference at all between a USD that makes (pitiful) interest in a bank savings account and a peg to USD that makes awesome interest in a Coinbase savings account. When I invest my USD with Wells Fargo bank they are converted to Wells Fargo Bucks that are tied to how efficient and generous the bank is (they aren’t) and my interest received is tied to that common enterprise. Those Wells Fargo Bucks aren’t classified as securities. The $1 portion will always be $1. No one invests in Tether or USD hoping their investment increases in value, that is absurd. It’s always a $1, so it is always losing value unfortunately.
  - goodcanadian 5y ago
    Your "Wells Fargo Bucks" aren't classified as securities because Wells Fargo is a regulated bank (with all of the restrictions and protections that come with that). Coinbase is not a bank. It is as simple as that. This is really more like buying a corporate bond (which is a security) rather than putting a money in a savings account.
    - ncallaway 5y ago
      It seems pretty apparent that there are two options for a company that wants to offer this product: - Offer it as a bank, while complying with the regulations for being a bank, OR - Offer it as a security, while complying with the regulations for offering securities. My read on this blog post is that Coinbase is trying to get out of the securities option by kinda pretending to be the banking option, but without actually complying with or falling under the jurisdiction of banking regulations. Is that about right?
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iblaine 5y ago
>we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC) My uneducated view of the Howie test is an investment qualifies as a security if you invest, do nothing, and expect a return. That’s my dumbed down definition that makes sense to me, a non lawyer. I do think Coinbase has painted a target on their back, the govt sees crypto as a threat to stability, and this lawsuit is an attempt to create stability.
nipponese 5y ago
In general, it seems like the SEC now has a mandate to reel in many players in the shadow banking industry and crypto happens to be in the cross-fire. https://www.nytimes.com/2021/09/05/us/politics/cryptocurrency-banking-regulation.html https://www.nytimes.com/2021/09/05/us/politics/cryptocurrenc...
signa11 5y ago
see this comment from "animats" : https://news.ycombinator.com/item?id=28453169 https://news.ycombinator.com/item?id=28453169
hncurious 5y ago
Mark Cuban's response is interesting: Brian, this is "Regulation via Litigation". They aren't capable of working through this themselves and are afraid of making mistakes in doing so. They they leave it to the lawyers. Just the people you don't want impacting the new technologies. You have to go on the offensive https://twitter.com/mcuban/status/1435454959441620995 https://twitter.com/mcuban/status/1435454959441620995
- deleted 5y ago
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- nostromo 5y ago
  That’s a bad take. The problem for Coinbase is the SEC understands it all too well. This is an investment, very much like a certificate of deposit, which happens to be regulated so that investors don’t get screwed.
jakecopp 5y ago
Original link redirects to medium.com for me. https://medium.com/@coinbaseblog?p=a3a1b6507009 https://medium.com/@coinbaseblog?p=a3a1b6507009 works however.
unixhero 5y ago
Probably a finance related issue.
jdblair 5y ago
It looks like the medium piece was taken down.
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cycomanic 5y ago
I have to say I'm getting tired of all these 'new economy' (is it still new?) companies, trying to get around established regulations which usually have been put into place for a good reason and using PR to create a narrative/pressure to say that regulations/regulators are hindering innovation and are not acting in good faith. Instead it seems to usually be the case that they are trying to do exactly what the regulation is trying to prevent. Just because because they come out of a "move fast and break things" culture, doesn't mean rules don't apply to them. Fortunately more and more people are seeing through these shenanigans.
- gnee 5y ago
  Interesting how the folks so passionate about open-source are the most hostile to open finance
  - chinathrow 5y ago
    That's because the two things are not related or even comparable. I do use OSS and I want open banking. What I do not want is that lots of people lose money due to fraud or high volatility.
    - capableweb 5y ago
      > I want open banking ... What I do not want is that lots of people lose money due to fraud or high volatility That's a bit like saying you want open source without the bugs, drama, forks or the ability for people to see the code you're publishing. Things come with tradeoffs. Open banking comes with the tradeoff that fraud and loosing your funds become easier, but it also means that it's easier for people without access to banks to have something to store value in.
      - hnthrowaway2 5y ago
        No, that is not what open banking is about at all. It just means that your financial data is not held in a prison by your banking provider. It means you have control over who you share that data with so that you can get value added services using your data.
tobias3 5y ago
Maybe they should have asked Brett Redfearn (former SEC director working at Coinbase) about the SECs reasoning. He left Coinbase in July? I guess the revolving door corruption failed (and/or he figured out where the wind is blowing)... This is really all too transparent and obvious. A risk-free investment with 4% APY. What-aboutism about other exchanges (which are unregulated and off-shore). Not "understanding" the problems the "SEC" has (even though they have all the money to buy even former SEC directors knowledge about SEC procceses).
- mthoms 5y ago
  As a kid I made over 4% APY interest on my savings account. Risk free. Yes, I realize their are important differences here but I don't think that getting a 4% risk-free return should be seen as an "obvious" problem.
  - josefx 5y ago
    Is the interest in case of lend actually risk free? The savings account was heavily regulated and insured so that even if the bank went out of business you would get your money back (up to a certain amount). What kind of emergency measures are in place to ensure that Lend costumers see their money again if coinbase goes out of business?
  - Denvercoder9 5y ago
    It's not about the exact percentage, it's about it being significantly higher than the risk-free interest offered elsewhere in the market (which is <1%). That's a big red flag that it's not actually risk-free.
    - wallacoloo 5y ago
      This is misleading. Different people asses risks differently. I have extremely little insight into the existing financial system: does my bank really have good security over their servers? Do they practice recovery on a regular basis so that there’s confidence my money will still be there when failures do happen? Will the IRS make a typo that results in my bank assets being frozen? I have zero insight into that. A lot of people seem to take it foregranted that existing bank systems are infallible. I have no way to assess that beyond the test of time (which is still worth something). Cryptocurrency lending platforms have similar types of risk: what’s the feasibility of the thing being hacked. For most of these, I can actually do a very rough assessment because the code is public, the team is usually public (and has a track record) and there are probably some security audits by groups who either are or aren’t yet reputable. I have more tools for assessing risk. So yes, some people will judge the risk of the 0.1% system to be lower than the 4% system. Some people will judge the risk to be the reverse (more practical if you substitute Compound/Aave for the 4% system). But you can’t separate the risk of a system from the users of that system so cleanly. There’s a very large subjective component to it.
Ice_cream_suit 5y ago
Coinbase are being disingenous. They are breaching numerous securities laws with their product. Posting on Medium or social media is no substitute for securities compliance and obtaining appropriate legal advice.
rockbruno 5y ago
...How childish is for someone in an executive position to start whining on Medium in the name of the company about something as serious as legal issues? Did they start hiring 12 year olds after the recent mass exodus?
- Tenoke 5y ago
  It's not childish. It can easily be a strategy to convince (retail) investors and users that Coinbase is in the right thus they shouldn't worry about this going too bad for them.
  - rockbruno 5y ago
    But surely there's a more formal and professional way of handling a serious subject than rambling on a blogging platform?
  - hnthrowaway2 5y ago
    It is charitable to call it childish. It is unprofessional. And it indicates a culture of "the rules don't apply to us because we are so cool".
    - Tenoke 5y ago
      Again, the reasoning behind it is likely for convincing investors/users they are in the right and as far as I can tell it is working - I see a lot of tweets of people buying Coinbase's response and raging against the SEC and people like balajis retweeting them.
- capableweb 5y ago
  As a customer of Coinbase for a long time (since 2013), I'm happy they tell the public what's going on, even if it's bad or good. Their customer support is abysmal, so any updates from their own back office is good to me.
qeternity 5y ago
Why do some in the crypto community think that technology magically changes the fundamental tenets of a given activity? Nobody would argue that it's impossible to commit wire fraud with a cellphone because it's wireless. And it's similarly disingenuous to argue the Howey test is irrelevant because it's decades old. Is the First Amendment just some dusty old law that doesn't apply anymore because the Founding Fathers didn't have TikTok?
- sneak 5y ago
  Well, the NFA wasn't deemed unconstitutional so it's clear that not all technological advances are considered equal in the eyes of the law.
- dcolkitt 5y ago
  Did Uber not fundamentally change the taxi and limousine laws? Did AirBnB not fundamentally change hotel and rental law? Did file sharing not fundamentally change copyright enforcement? Did Internet pornography not fundamentally end obscenity laws? Does delta-8 not fundamentally change cannabis prohibition? The point is that technology very often can and does magically change the tenets of an activity. This is just a fact of legal realism. The law can say whatever it works, but if the government is no longer capable of enforcing it, because tech moves faster and is more agile, then for most intents and purposes the law has fundamentally changed.
  - qeternity 5y ago
    Please show me which laws Uber and Airbnb have changed. If anything, those companies have trended towards existing regs. File sharing creating an entire industry of copyright enforcement, far from whatever you’re suggesting. Internet pornography ending obscenity laws? What in the hell are you on about? Those laws changed before the Internet and not because of technology. Drug laws have changed for no reason other than the fact that society has become more socially liberal. You are conflating the fact that society is changing at the same time tech is advancing (btw - both have been occurring for millennia simultaneously).
louissm_it 5y ago
As a non US citizen who knows very little about these things, could someone ELI5 what the implications would be if the Coinbase Lend program is successfully classified as a security?
andy_ppp 5y ago
My guess; Coinbase want their day in court to argue that Lend isn’t what the SEC thinks it is and this will allow them to build products with more leverage and complexity (and profit for Coinbase) in the future.
Asparagirl 5y ago
In just the past month, insiders at Coinbase dumped millions and millions of dollars of their stock in the company. How many of them knew about the Wells Notice from the SEC before they sold, but before the news was public? (Among the major sellers were not just the usual VC’s but also their General Counsel and their chief accountant.) https://protos.com/coinbase-stock-250-million-in-one-month-share-price-coin/ https://protos.com/coinbase-stock-250-million-in-one-month-s...
donpott 5y ago
@dang , we currently have two posts in the front page addressing broadly the same story, this one and https://news.ycombinator.com/item?id=28452628 https://news.ycombinator.com/item?id=28452628 Perhaps it's worth linking them or adding a comment to that effect?
hamburgerwah 5y ago
Very simple, this will compete aggressively with traditional banks which threatens their hegemony so it must be stopped.
- bsagdiyev 5y ago
  Yea financial things are “very simple”. Coinbase is in the wrong and got called out, “very simple”.
hnthrowaway2 5y ago
Well, this is a crock of shit. These guys want to discredit the regulator so that future money grabbers such as these will find it easier. I hope they get roasted over coals by the SEC.
aww_dang 5y ago
Although I'm not a fan of the SEC or regulators in general, I can appreciate how this falls under their purview. However, "Lend" is probably the least concerning thing about Coinbase in my view. The process by which they list or decline to list altcoins on their platform is more troubling.
zaptheimpaler 5y ago
Its called a f**ing bond. Its probably the largest and most important piece of the global securities market. Coinbase is shocked that their bond-in-a-trenchcoat is going to be regulated like a bond? I don't think there's any confusion at all to anyone remotely familiar with finance why it would be regulated this way. Crypto likes to rebrand decades old ideas and pretend they're new to confuse people who don't know better.
- imtringued 5y ago
  I agree. They are not a bank. That's all there is to it really...
- thelastbender12 5y ago
  For cryptocurrency to flourish, the end goal would be to have everyone as a stakeholder (not intended as an indictment), so additions/changes to the laws that are favorable to the industry have public support. As others point out, Coinbase must know the current legality of the lending offering. The likely objective of this piece is to gain support of those invested in the industry, and for them to push their legislators to reformulate laws.
devops000 5y ago
It’s written in the first page of Security act 1933. It’s quite clear, actually.
dboreham 5y ago
Ah, the "We're nowt but simple pirates" defense. Pretty hard to believe when Conibase's raison d'etre is to be the US-regulatory-regime-compliant face of the cryptocurrency industry, and when they are presumably represented by a law firm that has had previous clients subject to Howey test enforcement actions.
solaarphunk 5y ago
USDC IS A BASKET OF SECURITIES. It’s literally cash plus treasuries. I don’t think Coinbase is acting in good faith when they say they don’t understand why they are getting blasted by the SEC. This is the exact same issue with the original libra coin.
stevespang 5y ago
. . . Specifically for Lend, we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC) . . . 4% is WAY MORE than banks and credit unions pay - - - so Coinbase is "rocking the boat" - - and accordingly the dark forces of the established finance industry have told their government bed partners to prosecute - - we can't have 4% !
nullc 5y ago
The whole defi/ico/staking space is so mired in fraudian distortion fields that people who've come too close are no longer able to perceive ordinary reality anymore.
artfulhippo 5y ago
When I interviewed with Coinbase in 2018, it seemed that their core competency was strong relationships with regulators (not tech). And now they're picking a fight with the SEC? What's going on inside COIN? Office politics must be tense: unanimous support for this PR move seems unlikely.
hannob 5y ago
This looks like important context: https://twitter.com/BennettTomlin/status/1435473153078214660 https://twitter.com/BennettTomlin/status/1435473153078214660 "Chief Legal Officer who wrote Coinbase’s response that includes the following nugget has sold $24mn worth of Coinbase stock recently"
snigacookie 5y ago
I'm confused. Isn't it Coinbase's responsibility to be GAAP compliant now that they are a public company? These would be standard things a CFO should understand....
cryptica 5y ago
I normally don't like the idea of an institution which aims to protect people from their own poor decisions... But in our current, highly artificial, manipulated, money-printing economy, I think the SEC should just go ahead and shut down all the big crypto projects. If a crypto project can be shut down easily, it should be shut down. The SEC should also try to shut down all these so called 'Decentralized Exchanges'; if a DEX can be shut down, then it means that the DEX was not decentralized enough. There are projects in existence today which are truly decentralized and would be impossible to shut down but they are not getting any attention because these huge crypto projects are hoarding all the newly printed money which they claim to be fighting against.
tgtweak 5y ago
I think it comes down to one simple thing: Is there sufficient securities and disclosures in place for the financial vehicle (which looks a LOT like a bond). Saying "hey why can't we do what all those other (unregulated) exchanges are doing!!" is not a valid argument in the eyes of a regulator. I don't think any of coinbase's current clientele would be using coinbase if it wasn't a regulated compliant solution. You make your bed and you sleep in it.
Grustaf 5y ago
I don't know who's right but I certainly hope that an open letter won't affect the decision.
uncletammy 5y ago
They know why they are being sued. This is just a cry for help from pro-crypto consumers and crypto-adjacent business for whom coinbase has been paving the way.
jimkleiber 5y ago
This article seems to play into a trend I think I'm seeing more and more: caring more about the court of public opinion than the court of law. At least that's the impression I got from phrases such as "engage productively", "proactively engaging", "eager to hear", and others that seem to say that Coinbase has good intentions and is trying their best, while at the same time seeming to portray the SEC as uncooperative and antagonistic, through phrases such as "SEC still won’t explain", "wouldn’t say why or how they’d reached that conclusion", and others. The one that hits me the most and makes me think this is more about trying to align with the public will and not the current law is the following: "They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves." AFAIK, a decades-old Supreme Court case is still considered valid law, and such an appeal I would imagine would fall pretty flat in a court of law, but seems to work well in a public sphere. I'm open to being off on this, I guess I just feel a bit unsure how to proceed in this internet age, when I get the impression that people are skirting the courts of law more and more.
- RustyConsul 5y ago
  Airbnb, Uber, Facebook, Google, etc. all broke certain regulations or had regulations thrust upon them after the fact. Since technology companies move much faster than bureaucracy's ever can, I suspect the ask for forgiveness instead of permission is going to be an increasing theme in starting revolutionary industry's. The internet is a place that transcends locality but governments are still trying in vain to regulate them as if they were part of their jurisdiction. Certain regulation made in the globalist economy we find ourselves in, will determine which industries are cultivated within that locality.h emore obscure and burdensome the regulation, the more you will drive entrepreneurs elsewhere.
- jimkleiber 5y ago
  @RustyConsul, I have no idea why you were downvoted so much and frankly I feel annoyed about it. I liked your comment and wanted to continue the discussion but because some people downvoted you so much, I can't reply to your comment. I hope you see this one and realize not everyone wanted to shut down the discussion.
spotline 5y ago
The CLO was insider trading on non public info when they were talking to the SEC? I have no idea, just asking. https://twitter.com/rschmied/status/1433148462518792192 https://twitter.com/rschmied/status/1433148462518792192

437 points by jbegley 5y ago

Leave it to a bunch of programmers to believe they have hit takes on SEC litigation. In related news, my dentist told me I should use kotlin for my next project.

darawk 5y ago

To everyone saying "Well it's just obviously a security", you may well be right. But securities law and the Howey test are actually pretty complicated. If the SEC has a rationale for why this product is a security, that's great, they should share it. It's possible Brian is being dishonest in his presentation of their interaction. It's possible the SEC did give him a rationale and he just didn't like it. But if we take what he's saying at face value, the SEC's behavior here is unacceptable for a regulator, regardless of what you think of the crypto industry.

ErikVandeWater 5y ago

After reading the description of Coinbase Lend in this article I have no idea what it is.

Operyl 5y ago

It looks like the entire blog got deleted? https://blog.coinbase.com/ https://blog.coinbase.com/

slenk 5y ago
That's probably not a good sign.
- Ericson2314 5y ago
  Guess they figured out why :D
Ericson2314 5y ago
Hah! All the more spicy a news item her. Hope this post stays up.
gerikson 5y ago
It works for me. It's a Medium joint, so if you have JavaScript blocked you won't see zip.
- busymom0 5y ago
  I have JS enabled but still doesn't show for me. Just redirects to medium.
  - deleted 5y ago
    [deleted]
dheera 5y ago
"Last Wednesday, after months of effort by Coinbase to engage productively, the SEC gave us what’s called a Wells notice about our planned Coinbase Lend program. A Wells notice is the official way a regulator tells a company that it intends to sue the company in court. As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it. Background Coinbase has been proactively engaging with the SEC about Lend for nearly six months. We’ve been eager to hear their perspective as we explore innovative ways for our customers ... " from https://www.cryptocraft.com/news/1105897-the-sec-has-told-us-it-wants-to https://www.cryptocraft.com/news/1105897-the-sec-has-told-us...
isatty 5y ago
PR post that backfired. This is hilarious I wonder what they thought was going to happen.
- deleted 5y ago
  [deleted]
jyriand 5y ago
It opens on Medium app for me and I can see the post just fine.
- deleted 5y ago
  [deleted]
- KingOfCoders 5y ago
  Is the Medium app caching? (And it does a redirect to medium.com not an error message, perhaps the Medium app doesn't have the feature of redirection and the blog post is still there, can't curl b/c of Cloudflare)

jrochkind1 5y ago

Seems to be gone from the internet. Can't find it in archive.today or archive.org either. reddit comment thread: https://www.reddit.com/r/CryptoCurrency/comments/pk2rjl/coinbase_the_sec_has_told_us_it_wants_to_sue_us/ https://www.reddit.com/r/CryptoCurrency/comments/pk2rjl/coin... Which points to a tweet thread from Brian Armstrong of Coinbase that is still there for now.... https://twitter.com/brian_armstrong/status/1435440998054653959 https://twitter.com/brian_armstrong/status/14354409980546539... unrolled (and probably will still be there even if tweets deleted?) https://threadreaderapp.com/thread/1435440998054653959.html https://threadreaderapp.com/thread/1435440998054653959.html

pgrote 5y ago
Someone snagged an image. https://www.ilbe.com/view/11365594888 https://www.ilbe.com/view/11365594888
- gomox 5y ago
  Doesn't work (cloudflare error)
- nightpool 5y ago
  Here's another copy: https://postimg.cc/kBRq5b18 https://postimg.cc/kBRq5b18
- joering2 5y ago
  Their whole blog is gone https://blog.coinbase.com https://blog.coinbase.com
- nabakin 5y ago
  https://medium.com/@coinbaseblog?p=a3a1b6507009 https://medium.com/@coinbaseblog?p=a3a1b6507009 blog.coinbase.com is gone but post is still up on medium. Maybe we DDOS'd it?
busymom0 5y ago
Just a few months ago, I posted a similar thing regarding SEC suing the Decentralized Content Platform LBRY Over $11M in Token Sales. The SEC said LBRY sold unregistered securities: https://www.coindesk.com/markets/2021/03/30/us-government-sues-decentralized-content-platform-lbry-over-11m-in-token-sales/ https://www.coindesk.com/markets/2021/03/30/us-government-su...

fabiancook 5y ago

damn

busymom0 5y ago

Hmmm, the link just redirects to medium's home page for some reason.

anigbrowl 5y ago
I can't believe anyone hosts their stuff on Medium. It's an increasingly trash platform; you go to some website.com and then get n announcement that you've viewed too many medium stories this month. That didn't happen with this specific story, but the fact that Coindesk a relying on someone else to host their blog creates a poor impression - why would I trust their security or anything else, before I get near their financial products? Strange decision. Incidentally, I do think the SEC owes people clarity in matters of legal reasoning, but am not sure Coinbase is being fully forthright with readers here based on various other observations in the thread.

throw123123123 5y ago

Interesting that they had to delete it. I have it on my cache!

serial_dev 5y ago
It's still available on https://medium.com/@coinbaseblog https://medium.com/@coinbaseblog
- julianz 5y ago
  You can see the teasers for the articles, but clicking on one goes to the Medium homepage.

deleted 5y ago

[deleted]

elliotec 5y ago

I see it here: https://medium.com/@coinbaseblog https://medium.com/@coinbaseblog

deleted 5y ago
[deleted]
yla92 5y ago
Weird. I see the post in the link above as well but when I click the link, it got redirected to medium.com Edit: if i click "Read more" at the end of the article, I am able to see the whole post.

uncomputation 5y ago

I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantly just makes me feel like they’re playing a PR game. Seeing as they are already offering APY on staked Ethereum, I don’t see “concern” reflected in their actions. Seems like they are trying to get out to the public before the SEC does to farm some good will.

bpodgursky 5y ago
Brian's concern in the tweet thread is that a lot of other companies are already providing lending services without SEC action, putting Coinbase at a disadvantage. The rule should be applied across the industry in a standard manner, no matter which direction the SEC rules, and it is apparently not being applied consistently currently.
- seehafer 5y ago
  Are the other companies already providing lending services public? Public companies get orders of magnitude more scrutiny from SEC relative to private companies.
  - ac29 5y ago
    Other US companies providing similar products include Gemini, Kraken, and BlockFi. I dont think any of them are public. BlockFi's lending product has already been banned by several state regulatory agencies, but if they've been sued or warned by the SEC, I dont think thats been made public.
    - seehafer 5y ago
      Right. My point is that many federal agencies have mandates that dictate where they focus. For instance the SEC may come after any privately-owned startup, after the fact, if there’s overwhelming evidence of fraud (see: Theranos). But when you go public you enter into a whole new level of scrutiny, because regulating public markets is why the SEC even exists.

bpodgursky 5y ago

I would like to think that even the most crypto-skeptical here, those who wish the entire ecosystem would collapse in flames, would agree that the SEC and other regulatory bodies need to operate with transparent rules, making it clear when and why a company is violating the law. Operating short of that is not, by conventional definition, operating under the rule of law. It seems pretty clear that the SEC is not currently meeting those standards, and that needs to be fixed. Whether or not the target is one we are currently sympathetic towards.

ivalm 5y ago
They are operating by transparent rules. Howey test has been on the books since 1946: 1. The existence of an investment contract 2. The formation of a common enterprise 3. A promise of profits by the issuer 4. The use of a third party to promote the offering
- bpodgursky 5y ago
  At minimum, if that was true, Coinbase's competitors would not be freely operating the same service without SEC action.
  - ivalm 5y ago
    Coinbase competitors are largely operating in legally gray/black zone. Regulators do try to crack down and will likely to continue these efforts.
    - askmike 5y ago
      And in crypto SEC is usually late to enforce. They only last week cracked down on the Bitconnect ponzi, which collapsed in January 2018 (that's an eternity in crypto)
  - skybrian 5y ago
    That might change. Maybe they're going after Coinbase first? Making an argument based on SEC's action or inaction assumes you have a good model of how the SEC makes decisions. I sure don't. Do you?

peterbonney 5y ago

“We have no idea why the SEC intends to sue us! It is a complete mystery.” (Later in the post…) “All we’ve done is create a thing that people can trade which we are moving towards selling to investors against specific SEC advice to the contrary, but it is definitely not a security and as a result it is completely fine even though we have not complied with SEC regulations in any way with respect to it.” A mystery indeed…

seibelj 5y ago
Coinbase wants to know the legal rationale as to why it's a security, but SEC is stonewalling them and goading them to get into a legal fight. The opposite of "talk to us, come in" that the SEC claims the crypto industry refuses to do.
- peterbonney 5y ago
  It is clear from their own blog post that they have communicated with the SEC in considerable detail, and the SEC has told them in no uncertain terms not to proceed. It sounds to me like the SEC welcomed the discussion, it’s just that Coinbase doesn’t like the answer they got.
  - seibelj 5y ago
    The blog post says they did not give a rationale. That is the entire essence of the post. Did you read the post?
    - peterbonney 5y ago
      They repeatedly refer to lengthy sets of questions they received from the SEC, both in person and in writing. If you don’t think that is the SEC communicating their “rationale” for a decision and offering insight into what acceptable alternatives might look like then you obviously haven’t dealt with the SEC, nor do you understand what it is that they do. (I actually do have some relevant experience here - I was a partner at an alternative investment manager for 12 years.)

uniclaude 5y ago

As dangerous as it sounds for the industry, this article tells us they’ve discussed with the SEC without telling us what was said on their side. It’s difficult to share their confusion if we don’t know what they have fed the regulator. Common sense makes it sound like Lend is clearly not about securities, but the SEC has generally been looking for settlements or discussion instead of straight litigation. Why the change of motus operandi? Is it because Coinbase is big and it would make an example, or maybe somewhere in Lend there’s a business model that makes the product act like a security? Who knows at this point? More information from Coinbase would help us empathize.

deleted 5y ago

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fogof 5y ago

> They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves ... These two cases are from 1946 and 1990. Trying to make out like Howey is some obscure precedent from decades ago which the SEC is nitpicking over. The Howey test is the test applied to determine if something is an investment contract.

onlyrealcuzzo 5y ago
It's also like saying - I can't believe they're not letting us operate an Atlantic Slave Trade - because of some supreme court cases from decades ago. Why should the decades matter? Supreme court cases matter...
- cscurmudgeon 5y ago
  Or the US constitution, centuries old.
- ternaryoperator 5y ago
  That's a very poor analogy. It's inflammatory and disrespectful to put a trivial disagreement over investment classification on the same footing as the slave trade, and it's not factual either. Slave trade was not abolished by the Supreme Court, but by an act of Congress [0] and later by presidential decree [1]. [0] https://www.history.com/this-day-in-history/congress-abolishes-the-african-slave-trade https://www.history.com/this-day-in-history/congress-abolish... [1] Emancipation Proclamation
  - dehrmann 5y ago
    Nit: the Emancipation Proclamation only freed slaves in states rebelling against the union. Slavery was perfectly legal in Kentucky until December 18, 1865.
    - ternaryoperator 5y ago
      That is just a nit, as you say. The point is that the Supreme Court had nothing to do with ending the slave trade.

Aunche 5y ago

From the Coinbase page about Lend: >Lend your crypto to earn 4% APY >Your principal is guaranteed This definitely seems fishy. I don't see how this is possible unless if their position isn't levered. However, if they aren't levered, then why can't they just lend USDC themselves?

runawaybottle 5y ago
Someone correct me if I’m wrong, but I don’t believe banks are allowed to lever at the multiples necessary to offer a 4% interest rate (the collateral requirements are prohibitively too high). Coinbase is not a bank and doesn’t have to play by these rules.
- cwyers 5y ago
  > Coinbase is not a bank and doesn’t have to play by these rules. Which is why this whole thing is such bullshit. Coinbase: Hey, SEC, we're just giving you a heads-up that we're going to start doing something that's not in your jurisdiction. It's a loan! SEC: Oh, so you're doing banking? Coinbase: Nope, we're not a bank, we don't have to follow banking regulations. SEC: ...get back in here.
ac29 5y ago
Coinbase isn't making a return via leveraged treasury bonds or something. They are lending the money out presumably to crypto traders, DeFi schemes, etc. If someone thinks they they can make a 100% return on borrowed money, they absolutely should borrow at 10% (or whatever Coinbase's target is for their risk-adjusted cut after paying 4% to their not-investors). The whole space is so opaque and unregulated that it seems fairly clear that people with big accounts can, and do make market moving trades frequently. You might ask, why would someone want to pay huge interest on stablecoins when money is so cheap to borrow from traditional finance now? Answer: the exchanges that do most of the action are offshore and probably nearly unbankable. FTX getting 1B of Tether several times in a week is business as usual for them (happened this past week), but its almost certainly impossible for them to get any Bank to do a 1B USD transfer without paperwork they cant provide.
5y ago

arthurcolle 5y ago

coinbase should figure out why so many people are having problems with its withdrawal functionality before trying new products

zxcvbn4038 5y ago

Coinbase is even shifter then PayPal. It took several months and numerous support tickets before they clarified that they take a percentage of all ACH withdrawals regardless if it is cash you deposited or proceeds of a crypto sale. If you take money out you pay them a percentage. They try really to hide that in their pricing matrix. Every time I asked about it I would either get a form letter pointing me to the pricing matrix, or a form letter explaining my bank may charge a fee for ACH. If I asked in a way that was clear that I had read the matrix already and verified my bank charged no ACH fees - they would stop responding. I think some manager was closing stale tickets and they gave me the exact answer.

hackingforfun 5y ago
Coinbase Pro [1] definitely has free ACH deposits and withdrawals, i.e. see the Fiat Deposit (Add Cash) and Withdrawal Fees table here [2]. That said I have heard that Coinbase does need to get their support in order, although that is surprising that with Coinbase.com (I'm guessing that's what you used) they would charge you to withdrawal cash. When buying or selling crypto on Coinbase.com vs Coinbase Pro, the trading fees are for sure lower on Coinbase Pro. However, this applies to crypto exchanges in general when you don't use their "advanced" interfaces (which are basically more like brokerage accounts with market / limit / stop orders, vs just simple buy / sell interfaces). Gemini is another offender in that regard, i.e. if you don't use their ActiveTrader interface, their fees are quite a bit higher [3]. [1] https://pro.coinbase.com https://pro.coinbase.com [2] https://help.coinbase.com/en/pro/trading-and-funding/trading-rules-and-fees/fees https://help.coinbase.com/en/pro/trading-and-funding/trading... [3] https://www.gemini.com/fees https://www.gemini.com/fees
- encryptluks2 5y ago
  Support in order = they ignore support tickets for months or just delete them. They are acting like a bank essentially. Imagine going to or calling your bank and no one being home for months.

jtchang 5y ago

I mean why not go after Coinbase? The argument that everyone else is doing it why not go after them doesn't hold much water. Sometimes it makes sense to go after the biggest fish first. Also, is Coinbase saying Lend isn't an investment contract? It sure sounds like one to me. Lend my crypto to Coinbase and I get a 4% return? I like the idea but it sure sounds like an investment contract to me.

JohnJamesRambo 5y ago
To me it sounds like banks can’t compete and just keep the 4%, so now they have the SEC go after their competition that can. I don’t see the difference at all between a USD that makes (pitiful) interest in a bank savings account and a peg to USD that makes awesome interest in a Coinbase savings account. When I invest my USD with Wells Fargo bank they are converted to Wells Fargo Bucks that are tied to how efficient and generous the bank is (they aren’t) and my interest received is tied to that common enterprise. Those Wells Fargo Bucks aren’t classified as securities. The $1 portion will always be $1. No one invests in Tether or USD hoping their investment increases in value, that is absurd. It’s always a $1, so it is always losing value unfortunately.
- goodcanadian 5y ago
  Your "Wells Fargo Bucks" aren't classified as securities because Wells Fargo is a regulated bank (with all of the restrictions and protections that come with that). Coinbase is not a bank. It is as simple as that. This is really more like buying a corporate bond (which is a security) rather than putting a money in a savings account.
  - ncallaway 5y ago
    It seems pretty apparent that there are two options for a company that wants to offer this product: - Offer it as a bank, while complying with the regulations for being a bank, OR - Offer it as a security, while complying with the regulations for offering securities. My read on this blog post is that Coinbase is trying to get out of the securities option by kinda pretending to be the banking option, but without actually complying with or falling under the jurisdiction of banking regulations. Is that about right?

deleted 5y ago

[deleted]

iblaine 5y ago

>we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC) My uneducated view of the Howie test is an investment qualifies as a security if you invest, do nothing, and expect a return. That’s my dumbed down definition that makes sense to me, a non lawyer. I do think Coinbase has painted a target on their back, the govt sees crypto as a threat to stability, and this lawsuit is an attempt to create stability.

nipponese 5y ago

In general, it seems like the SEC now has a mandate to reel in many players in the shadow banking industry and crypto happens to be in the cross-fire. https://www.nytimes.com/2021/09/05/us/politics/cryptocurrency-banking-regulation.html https://www.nytimes.com/2021/09/05/us/politics/cryptocurrenc...

signa11 5y ago

see this comment from "animats" : https://news.ycombinator.com/item?id=28453169 https://news.ycombinator.com/item?id=28453169

hncurious 5y ago

Mark Cuban's response is interesting: Brian, this is "Regulation via Litigation". They aren't capable of working through this themselves and are afraid of making mistakes in doing so. They they leave it to the lawyers. Just the people you don't want impacting the new technologies. You have to go on the offensive https://twitter.com/mcuban/status/1435454959441620995 https://twitter.com/mcuban/status/1435454959441620995

deleted 5y ago
[deleted]
nostromo 5y ago
That’s a bad take. The problem for Coinbase is the SEC understands it all too well. This is an investment, very much like a certificate of deposit, which happens to be regulated so that investors don’t get screwed.

jakecopp 5y ago

Original link redirects to medium.com for me. https://medium.com/@coinbaseblog?p=a3a1b6507009 https://medium.com/@coinbaseblog?p=a3a1b6507009 works however.

unixhero 5y ago

Probably a finance related issue.

jdblair 5y ago

It looks like the medium piece was taken down.

deleted 5y ago

[deleted]

cycomanic 5y ago

I have to say I'm getting tired of all these 'new economy' (is it still new?) companies, trying to get around established regulations which usually have been put into place for a good reason and using PR to create a narrative/pressure to say that regulations/regulators are hindering innovation and are not acting in good faith. Instead it seems to usually be the case that they are trying to do exactly what the regulation is trying to prevent. Just because because they come out of a "move fast and break things" culture, doesn't mean rules don't apply to them. Fortunately more and more people are seeing through these shenanigans.

gnee 5y ago
Interesting how the folks so passionate about open-source are the most hostile to open finance
- chinathrow 5y ago
  That's because the two things are not related or even comparable. I do use OSS and I want open banking. What I do not want is that lots of people lose money due to fraud or high volatility.
  - capableweb 5y ago
    > I want open banking ... What I do not want is that lots of people lose money due to fraud or high volatility That's a bit like saying you want open source without the bugs, drama, forks or the ability for people to see the code you're publishing. Things come with tradeoffs. Open banking comes with the tradeoff that fraud and loosing your funds become easier, but it also means that it's easier for people without access to banks to have something to store value in.
    - hnthrowaway2 5y ago
      No, that is not what open banking is about at all. It just means that your financial data is not held in a prison by your banking provider. It means you have control over who you share that data with so that you can get value added services using your data.

tobias3 5y ago

Maybe they should have asked Brett Redfearn (former SEC director working at Coinbase) about the SECs reasoning. He left Coinbase in July? I guess the revolving door corruption failed (and/or he figured out where the wind is blowing)... This is really all too transparent and obvious. A risk-free investment with 4% APY. What-aboutism about other exchanges (which are unregulated and off-shore). Not "understanding" the problems the "SEC" has (even though they have all the money to buy even former SEC directors knowledge about SEC procceses).

mthoms 5y ago
As a kid I made over 4% APY interest on my savings account. Risk free. Yes, I realize their are important differences here but I don't think that getting a 4% risk-free return should be seen as an "obvious" problem.
- josefx 5y ago
  Is the interest in case of lend actually risk free? The savings account was heavily regulated and insured so that even if the bank went out of business you would get your money back (up to a certain amount). What kind of emergency measures are in place to ensure that Lend costumers see their money again if coinbase goes out of business?
- Denvercoder9 5y ago
  It's not about the exact percentage, it's about it being significantly higher than the risk-free interest offered elsewhere in the market (which is <1%). That's a big red flag that it's not actually risk-free.
  - wallacoloo 5y ago
    This is misleading. Different people asses risks differently. I have extremely little insight into the existing financial system: does my bank really have good security over their servers? Do they practice recovery on a regular basis so that there’s confidence my money will still be there when failures do happen? Will the IRS make a typo that results in my bank assets being frozen? I have zero insight into that. A lot of people seem to take it foregranted that existing bank systems are infallible. I have no way to assess that beyond the test of time (which is still worth something). Cryptocurrency lending platforms have similar types of risk: what’s the feasibility of the thing being hacked. For most of these, I can actually do a very rough assessment because the code is public, the team is usually public (and has a track record) and there are probably some security audits by groups who either are or aren’t yet reputable. I have more tools for assessing risk. So yes, some people will judge the risk of the 0.1% system to be lower than the 4% system. Some people will judge the risk to be the reverse (more practical if you substitute Compound/Aave for the 4% system). But you can’t separate the risk of a system from the users of that system so cleanly. There’s a very large subjective component to it.

Ice_cream_suit 5y ago

Coinbase are being disingenous. They are breaching numerous securities laws with their product. Posting on Medium or social media is no substitute for securities compliance and obtaining appropriate legal advice.

rockbruno 5y ago

...How childish is for someone in an executive position to start whining on Medium in the name of the company about something as serious as legal issues? Did they start hiring 12 year olds after the recent mass exodus?

Tenoke 5y ago
It's not childish. It can easily be a strategy to convince (retail) investors and users that Coinbase is in the right thus they shouldn't worry about this going too bad for them.
- rockbruno 5y ago
  But surely there's a more formal and professional way of handling a serious subject than rambling on a blogging platform?
- hnthrowaway2 5y ago
  It is charitable to call it childish. It is unprofessional. And it indicates a culture of "the rules don't apply to us because we are so cool".
  - Tenoke 5y ago
    Again, the reasoning behind it is likely for convincing investors/users they are in the right and as far as I can tell it is working - I see a lot of tweets of people buying Coinbase's response and raging against the SEC and people like balajis retweeting them.
capableweb 5y ago
As a customer of Coinbase for a long time (since 2013), I'm happy they tell the public what's going on, even if it's bad or good. Their customer support is abysmal, so any updates from their own back office is good to me.

qeternity 5y ago

Why do some in the crypto community think that technology magically changes the fundamental tenets of a given activity? Nobody would argue that it's impossible to commit wire fraud with a cellphone because it's wireless. And it's similarly disingenuous to argue the Howey test is irrelevant because it's decades old. Is the First Amendment just some dusty old law that doesn't apply anymore because the Founding Fathers didn't have TikTok?

sneak 5y ago
Well, the NFA wasn't deemed unconstitutional so it's clear that not all technological advances are considered equal in the eyes of the law.
dcolkitt 5y ago
Did Uber not fundamentally change the taxi and limousine laws? Did AirBnB not fundamentally change hotel and rental law? Did file sharing not fundamentally change copyright enforcement? Did Internet pornography not fundamentally end obscenity laws? Does delta-8 not fundamentally change cannabis prohibition? The point is that technology very often can and does magically change the tenets of an activity. This is just a fact of legal realism. The law can say whatever it works, but if the government is no longer capable of enforcing it, because tech moves faster and is more agile, then for most intents and purposes the law has fundamentally changed.
- qeternity 5y ago
  Please show me which laws Uber and Airbnb have changed. If anything, those companies have trended towards existing regs. File sharing creating an entire industry of copyright enforcement, far from whatever you’re suggesting. Internet pornography ending obscenity laws? What in the hell are you on about? Those laws changed before the Internet and not because of technology. Drug laws have changed for no reason other than the fact that society has become more socially liberal. You are conflating the fact that society is changing at the same time tech is advancing (btw - both have been occurring for millennia simultaneously).

louissm_it 5y ago

As a non US citizen who knows very little about these things, could someone ELI5 what the implications would be if the Coinbase Lend program is successfully classified as a security?

andy_ppp 5y ago

My guess; Coinbase want their day in court to argue that Lend isn’t what the SEC thinks it is and this will allow them to build products with more leverage and complexity (and profit for Coinbase) in the future.

Asparagirl 5y ago

In just the past month, insiders at Coinbase dumped millions and millions of dollars of their stock in the company. How many of them knew about the Wells Notice from the SEC before they sold, but before the news was public? (Among the major sellers were not just the usual VC’s but also their General Counsel and their chief accountant.) https://protos.com/coinbase-stock-250-million-in-one-month-share-price-coin/ https://protos.com/coinbase-stock-250-million-in-one-month-s...

donpott 5y ago

@dang , we currently have two posts in the front page addressing broadly the same story, this one and https://news.ycombinator.com/item?id=28452628 https://news.ycombinator.com/item?id=28452628 Perhaps it's worth linking them or adding a comment to that effect?

hamburgerwah 5y ago

Very simple, this will compete aggressively with traditional banks which threatens their hegemony so it must be stopped.

bsagdiyev 5y ago
Yea financial things are “very simple”. Coinbase is in the wrong and got called out, “very simple”.

hnthrowaway2 5y ago

Well, this is a crock of shit. These guys want to discredit the regulator so that future money grabbers such as these will find it easier. I hope they get roasted over coals by the SEC.

aww_dang 5y ago

Although I'm not a fan of the SEC or regulators in general, I can appreciate how this falls under their purview. However, "Lend" is probably the least concerning thing about Coinbase in my view. The process by which they list or decline to list altcoins on their platform is more troubling.

zaptheimpaler 5y ago

Its called a f**ing bond. Its probably the largest and most important piece of the global securities market. Coinbase is shocked that their bond-in-a-trenchcoat is going to be regulated like a bond? I don't think there's any confusion at all to anyone remotely familiar with finance why it would be regulated this way. Crypto likes to rebrand decades old ideas and pretend they're new to confuse people who don't know better.

imtringued 5y ago
I agree. They are not a bank. That's all there is to it really...
thelastbender12 5y ago
For cryptocurrency to flourish, the end goal would be to have everyone as a stakeholder (not intended as an indictment), so additions/changes to the laws that are favorable to the industry have public support. As others point out, Coinbase must know the current legality of the lending offering. The likely objective of this piece is to gain support of those invested in the industry, and for them to push their legislators to reformulate laws.

devops000 5y ago

It’s written in the first page of Security act 1933. It’s quite clear, actually.

dboreham 5y ago

Ah, the "We're nowt but simple pirates" defense. Pretty hard to believe when Conibase's raison d'etre is to be the US-regulatory-regime-compliant face of the cryptocurrency industry, and when they are presumably represented by a law firm that has had previous clients subject to Howey test enforcement actions.

solaarphunk 5y ago

USDC IS A BASKET OF SECURITIES. It’s literally cash plus treasuries. I don’t think Coinbase is acting in good faith when they say they don’t understand why they are getting blasted by the SEC. This is the exact same issue with the original libra coin.

stevespang 5y ago

. . . Specifically for Lend, we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC) . . . 4% is WAY MORE than banks and credit unions pay - - - so Coinbase is "rocking the boat" - - and accordingly the dark forces of the established finance industry have told their government bed partners to prosecute - - we can't have 4% !

nullc 5y ago

The whole defi/ico/staking space is so mired in fraudian distortion fields that people who've come too close are no longer able to perceive ordinary reality anymore.

artfulhippo 5y ago

When I interviewed with Coinbase in 2018, it seemed that their core competency was strong relationships with regulators (not tech). And now they're picking a fight with the SEC? What's going on inside COIN? Office politics must be tense: unanimous support for this PR move seems unlikely.

hannob 5y ago

This looks like important context: https://twitter.com/BennettTomlin/status/1435473153078214660 https://twitter.com/BennettTomlin/status/1435473153078214660 "Chief Legal Officer who wrote Coinbase’s response that includes the following nugget has sold $24mn worth of Coinbase stock recently"

snigacookie 5y ago

I'm confused. Isn't it Coinbase's responsibility to be GAAP compliant now that they are a public company? These would be standard things a CFO should understand....

cryptica 5y ago

I normally don't like the idea of an institution which aims to protect people from their own poor decisions... But in our current, highly artificial, manipulated, money-printing economy, I think the SEC should just go ahead and shut down all the big crypto projects. If a crypto project can be shut down easily, it should be shut down. The SEC should also try to shut down all these so called 'Decentralized Exchanges'; if a DEX can be shut down, then it means that the DEX was not decentralized enough. There are projects in existence today which are truly decentralized and would be impossible to shut down but they are not getting any attention because these huge crypto projects are hoarding all the newly printed money which they claim to be fighting against.

tgtweak 5y ago

I think it comes down to one simple thing: Is there sufficient securities and disclosures in place for the financial vehicle (which looks a LOT like a bond). Saying "hey why can't we do what all those other (unregulated) exchanges are doing!!" is not a valid argument in the eyes of a regulator. I don't think any of coinbase's current clientele would be using coinbase if it wasn't a regulated compliant solution. You make your bed and you sleep in it.

Grustaf 5y ago

I don't know who's right but I certainly hope that an open letter won't affect the decision.

uncletammy 5y ago

They know why they are being sued. This is just a cry for help from pro-crypto consumers and crypto-adjacent business for whom coinbase has been paving the way.

jimkleiber 5y ago

This article seems to play into a trend I think I'm seeing more and more: caring more about the court of public opinion than the court of law. At least that's the impression I got from phrases such as "engage productively", "proactively engaging", "eager to hear", and others that seem to say that Coinbase has good intentions and is trying their best, while at the same time seeming to portray the SEC as uncooperative and antagonistic, through phrases such as "SEC still won’t explain", "wouldn’t say why or how they’d reached that conclusion", and others. The one that hits me the most and makes me think this is more about trying to align with the public will and not the current law is the following: "They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves." AFAIK, a decades-old Supreme Court case is still considered valid law, and such an appeal I would imagine would fall pretty flat in a court of law, but seems to work well in a public sphere. I'm open to being off on this, I guess I just feel a bit unsure how to proceed in this internet age, when I get the impression that people are skirting the courts of law more and more.

RustyConsul 5y ago
Airbnb, Uber, Facebook, Google, etc. all broke certain regulations or had regulations thrust upon them after the fact. Since technology companies move much faster than bureaucracy's ever can, I suspect the ask for forgiveness instead of permission is going to be an increasing theme in starting revolutionary industry's. The internet is a place that transcends locality but governments are still trying in vain to regulate them as if they were part of their jurisdiction. Certain regulation made in the globalist economy we find ourselves in, will determine which industries are cultivated within that locality.h emore obscure and burdensome the regulation, the more you will drive entrepreneurs elsewhere.
jimkleiber 5y ago
@RustyConsul, I have no idea why you were downvoted so much and frankly I feel annoyed about it. I liked your comment and wanted to continue the discussion but because some people downvoted you so much, I can't reply to your comment. I hope you see this one and realize not everyone wanted to shut down the discussion.

spotline 5y ago

The CLO was insider trading on non public info when they were talking to the SEC? I have no idea, just asking. https://twitter.com/rschmied/status/1433148462518792192 https://twitter.com/rschmied/status/1433148462518792192