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IANAL, but isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? If Coinb

IANAL, but isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? If Coinbase is _guaranteeing_ you a 4% return, then there is no variability and the efforts of others are irrelevant. Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from.

onlyrealcuzzo 5y ago
Lend can pay you less than 4%. That being said, loans are not usually considered securities. Although they are regulated by FINRA.
- adrr 5y ago
  Mortgage backed securities are securities even though they are loans under the hood. Bond is also a loan. Same with money market accounts. There are a bunch of debt securities.
  - darksaints 5y ago
    Once you package it up into a tradable instrument, it becomes a security, which would either be regulated by the SEC (bonds) or the CFTC (swaps or futures). But if it isn't tradable (which a lending account is not), it's not a security. It's likely the jurisdiction of FINRA or the FDIC.
    - adrr 5y ago
      My sweep account on my brokerage is regulated by the SEC. I can’t trade it. Some of the challenger banks are using sweep accounts instead of standard deposit accounts. Just look at the ones with a broker dealer license.
      - darksaints 5y ago
        Sweep accounts are not regulated by the SEC, they're regulated by the FDIC and other bank-related regulatory bodies. They may be offered by SEC regulated brokerages, but that doesn't mean that the accounts themselves are regulated by the SEC. https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksweep.html https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksw...
        adrr 5y ago
        FDIC insured if the money is stored at a bank. Those are called brokered accounts. Not all sweep accounts use them and use money market funds or other securities. Also brokered accounts are fungible money can and does get transferred around behind the scenes. Some broker dealers will use the cash for overnight lending for income.
  - eru 5y ago
    You can package almost anything into a security. A bunch of machines and a factory is not a security, but you can package it into a security.
    - throwaway2037 5y ago
      Yes! These are called ABS: Asset-backed Securities. One of the most famous was David Bowie's bonds to securitise the future cashflow of his record sales. Ref: https://www.investopedia.com/terms/b/bowie-bond.asp https://www.investopedia.com/terms/b/bowie-bond.asp
habitue 5y ago
They're guaranteeing it in the same way that when you buy a corporate bond with a 4% yield, you're guaranteed to get the money[0]. A bond is still a security. [0] Right? Counterparty risk!
- modeless 5y ago
  Not all loans are bonds though. How does the law define the difference?
  - JumpCrisscross 5y ago
    > Not all loans are bonds though. How does the law define the difference? Bonds are raised from a diverse set of investors. Loans, in securities parlance, are raised from (and syndicated by) regulated banks.
    - alasdair_ 5y ago
      Individuals can loan money to other individuals, no? They can even agree to pay interest if they want, or am I missing something?
      - eru 5y ago
        When you are giving a loan to your friend or a business partner, you are not engaging with the general public. Similar, you can sell shares in your business to your friend or business partner, but if you want to sell to the general public, the SEC is interested. (I have no clue whether this distinction is the important legal one here.)
    - throwaway2037 5y ago
      Bonds are also registered investments which strict regulations about marketing (IPO), trading, and settlement. In some markets, "private placement" bonds are possible, but there are still many rules to follow created by financial regulators. A cursory search of "loan vs bond" yields many interesting results. I am sure the variance matters from market to market.
JumpCrisscross 5y ago
> isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? No. By that standard, no bonds would qualify as securities.
- deleted 5y ago
  [deleted]
encryptluks2 5y ago
I can tell you have staking with Coinbase, first they can change the terms at anytime so you can't trust that you'll get what they say... Second, you'll be lucky to get anything at all. After staking with them for 6 months turns out I didn't get anything because their system was broken and guess what happened when I filed a support request? No response after multiple attempts and 3 months.
dragonwriter 5y ago
> If Coinbase is _guaranteeing_ you a 4% return, then there is no variability Yes, there is. There is just a cause of action if the variation happens. But, a big point of securities regulation is to protect before money is lost on illegal offerings. > Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from. Well, they would still owe it. They’d also potentially be bankrupt and not have to pay it. Counterparty risk is real risk. Corporate bonds can be fixed interest. Corporate bonds are definitely regulated securities, even when fixed interest. Therefore, being fixed interest does not suffice to make an investment offer a non-security.
TomSwirly 5y ago
> If Coinbase is _guaranteeing_ you a 4% return, No, they are _promising_ you a 4% return - hardly the same thing. There is a non-zero risk that they'll go out of business. Companies go out of business all the time, sometimes with no warning at all. I worked for a company that was for a short time the largest private company in the world. Within two years, the SEC showed up one morning, and told all the traders to perform an orderly liquidation, because the company was insolvent. If they go out of business, you might even lose some or all of your principal. Ask yourself this: when savings rates are around 1%, why do they have to offer 4% if this is riskless? Surely the efficient market hypothesis means that that extra 3% or so is what they perceive people will want for bearing this extra risk?
- quickthrowman 5y ago
  > I worked for a company that was for a short time the largest private company in the world. Within two years, the SEC showed up one morning, and told all the traders to perform an orderly liquidation, because the company was insolvent. LTCM?

onlyrealcuzzo 5y ago

Lend can pay you less than 4%. That being said, loans are not usually considered securities. Although they are regulated by FINRA.

adrr 5y ago
Mortgage backed securities are securities even though they are loans under the hood. Bond is also a loan. Same with money market accounts. There are a bunch of debt securities.
- darksaints 5y ago
  Once you package it up into a tradable instrument, it becomes a security, which would either be regulated by the SEC (bonds) or the CFTC (swaps or futures). But if it isn't tradable (which a lending account is not), it's not a security. It's likely the jurisdiction of FINRA or the FDIC.
  - adrr 5y ago
    My sweep account on my brokerage is regulated by the SEC. I can’t trade it. Some of the challenger banks are using sweep accounts instead of standard deposit accounts. Just look at the ones with a broker dealer license.
    - darksaints 5y ago
      Sweep accounts are not regulated by the SEC, they're regulated by the FDIC and other bank-related regulatory bodies. They may be offered by SEC regulated brokerages, but that doesn't mean that the accounts themselves are regulated by the SEC. https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksweep.html https://www.sec.gov/oiea/investor-alerts-bulletins/ib_banksw...
      - adrr 5y ago
        FDIC insured if the money is stored at a bank. Those are called brokered accounts. Not all sweep accounts use them and use money market funds or other securities. Also brokered accounts are fungible money can and does get transferred around behind the scenes. Some broker dealers will use the cash for overnight lending for income.
- eru 5y ago
  You can package almost anything into a security. A bunch of machines and a factory is not a security, but you can package it into a security.
  - throwaway2037 5y ago
    Yes! These are called ABS: Asset-backed Securities. One of the most famous was David Bowie's bonds to securitise the future cashflow of his record sales. Ref: https://www.investopedia.com/terms/b/bowie-bond.asp https://www.investopedia.com/terms/b/bowie-bond.asp

habitue 5y ago

They're guaranteeing it in the same way that when you buy a corporate bond with a 4% yield, you're guaranteed to get the money[0]. A bond is still a security. [0] Right? Counterparty risk!

modeless 5y ago
Not all loans are bonds though. How does the law define the difference?
- JumpCrisscross 5y ago
  > Not all loans are bonds though. How does the law define the difference? Bonds are raised from a diverse set of investors. Loans, in securities parlance, are raised from (and syndicated by) regulated banks.
  - alasdair_ 5y ago
    Individuals can loan money to other individuals, no? They can even agree to pay interest if they want, or am I missing something?
    - eru 5y ago
      When you are giving a loan to your friend or a business partner, you are not engaging with the general public. Similar, you can sell shares in your business to your friend or business partner, but if you want to sell to the general public, the SEC is interested. (I have no clue whether this distinction is the important legal one here.)
  - throwaway2037 5y ago
    Bonds are also registered investments which strict regulations about marketing (IPO), trading, and settlement. In some markets, "private placement" bonds are possible, but there are still many rules to follow created by financial regulators. A cursory search of "loan vs bond" yields many interesting results. I am sure the variance matters from market to market.

JumpCrisscross 5y ago

> isn't the point of the Howey test that you're making investments with variable returns, where those returns depend on the efforts of others? No. By that standard, no bonds would qualify as securities.

deleted 5y ago
[deleted]

encryptluks2 5y ago

I can tell you have staking with Coinbase, first they can change the terms at anytime so you can't trust that you'll get what they say... Second, you'll be lucky to get anything at all. After staking with them for 6 months turns out I didn't get anything because their system was broken and guess what happened when I filed a support request? No response after multiple attempts and 3 months.

dragonwriter 5y ago

> If Coinbase is _guaranteeing_ you a 4% return, then there is no variability Yes, there is. There is just a cause of action if the variation happens. But, a big point of securities regulation is to protect before money is lost on illegal offerings. > Coinbase could spend all of the money on JPEGs of my cat and they would still have to pay a 4% return to the people they borrowed the money from. Well, they would still owe it. They’d also potentially be bankrupt and not have to pay it. Counterparty risk is real risk. Corporate bonds can be fixed interest. Corporate bonds are definitely regulated securities, even when fixed interest. Therefore, being fixed interest does not suffice to make an investment offer a non-security.

TomSwirly 5y ago

> If Coinbase is _guaranteeing_ you a 4% return, No, they are _promising_ you a 4% return - hardly the same thing. There is a non-zero risk that they'll go out of business. Companies go out of business all the time, sometimes with no warning at all. I worked for a company that was for a short time the largest private company in the world. Within two years, the SEC showed up one morning, and told all the traders to perform an orderly liquidation, because the company was insolvent. If they go out of business, you might even lose some or all of your principal. Ask yourself this: when savings rates are around 1%, why do they have to offer 4% if this is riskless? Surely the efficient market hypothesis means that that extra 3% or so is what they perceive people will want for bearing this extra risk?

quickthrowman 5y ago
> I worked for a company that was for a short time the largest private company in the world. Within two years, the SEC showed up one morning, and told all the traders to perform an orderly liquidation, because the company was insolvent. LTCM?