SEC Chairman Gary Gensler Targets Crypto Lending Platforms, Starting with Coinbase Lend

Coinbase has been warned by the US Securities and Exchange Commission (SEC) against launching a new product, Lend, that allows its users to earn interest on their crypto holdings.

The biggest crypto exchange in the US said it had received a Wells notice saying the agency will bring an enforcement action against them if the company goes ahead with its product. Coinbase said that it plans to delay the launch at least until October.

Coinbase Lend allows users to earn a 4% interest rate on USDC stablecoin, which it says is “over 8x the national average for high-yield savings accounts.”

Regulatory capture 101.

Banks don't want this type of lending because the rates are higher than they can offer. SEC protects the banks (Dodd-Frank Act handed the banks the keys to the castle).

It's a pity. https://t.co/rGCIANeWuh

— J◎e McCann (@joemccann) September 8, 2021

In the company blog post, Paul Grewal, Chief Legal Officer, said they had been proactively engaging with the SEC about Lend for nearly six months. But didn’t get any response from the agency other than that the SEC considered Lend to involve security.

Instead of providing an explanation, the SEC has opened a formal investigation and has asked for documents and written responses, along with the name and contact information of every single person on their Lend waitlist.

“We have not agreed to provide that because we take a very cautious approach to requests for customers’ personal information. We also don’t believe it is relevant to any particular questions the SEC might have about Lend involving a security, especially when the SEC won’t share any of those questions with us,” said Grewal.

The goal of a regulator is to go after bad actors. In this case, the bad actor is the SEC.

— Kyle Davies (@kyled116) September 8, 2021

Coinbase CEO Brian Armstrong also took to Twitter to share the “really sketchy behavior” from the SEC.

He also pointed out how in his confirmation hearing, SEC Chair Gary Gensler said that it is “important for the SEC to provide guidance and clarity.” And now, they are doing exactly the opposite.

Earlier that month, in an interview with FT, Gensler asked crypto companies to “Talk to us, come in,” adding, existing platforms are “begging for forgiveness, rather than asking for permission.” And when Coinbase did just that, the SEC didn’t provide any explanations.

“If you don't want this activity, then simply publish your position, in writing, and enforce it evenly across the industry.”

.@brian_armstrong you seem surprised. Apparently you did not carefully listen to @GaryGensler’s August 3rd remarks. I will link to it in a follow-up tweet.

Altcoiners, we’ve been telling you that Gensler said that all but 5–25 alts would be delisted from regulated exchanges. https://t.co/y2waf4b9vz

— log scale 🇸🇻 (@_log_scale_) September 8, 2021

As we reported, Gensler has been targeting two areas: crypto trading and lending platforms and stablecoins that are embedded on these platforms. He also asked for legislative priority on them, whether centralized or decentralized.

The CEO then argued that while SEC claims to be working to protect investors and create fair markets, who exactly “are they protecting here and where is the harm?”

Armstrong also met with every regulator and branch of government in the DC that he could in May this year except the SEC that “refused” to meet him, “saying “we're not meeting with any crypto companies.” This was right after we became the first crypto company to go public in the US,” he said.

5/ Crypto’s critics in DC *cannot* win their arguments on merit and it shows.

+ Fastest growing sector of US tech
+ Financial Internet that keeps the US dominant in finance and USD strong
+ User Owned Economy that promotes financial inclusion

Why block it?!

— Ryan Selkis (@twobitidiot) September 8, 2021

In response to Armstrong's Twitter thread, Dallas Mavericks' Mark Cuban advised him to go on the offensive.

Meanwhile, the crypto community pointed to the fact that Gensler is a former Goldman Sachs partner and speculated that the banking industry is making the moves behind the curtain to try and curb the crypto industry that is revolutionizing finance and working on putting them out of business. Others speculate that it could be a personal political power grab by SEC leadership.

Occam’s razor…. they all work for the banks. Gensler, Warren, Yellen, all of them.

There’s a reason banks spend hundreds of millions of dollars to “lobby” both sides of the aisle.

Proof of stake in its final form. The owners will have their way.

“Democracy” is a fairy tale…

— Jaded Mandarin (@Hollywood_Dave) September 8, 2021

“Hopefully the SEC steps up to create the clarity this industry deserves, without harming consumers and companies in the process. America could really use us all working together to figure this out right now,” concluded Armstrong.