Support for Coinbase and its CEO, Brian Armstrong, has been pouring in from the crypto community since the company disclosed in a regulatory filing on Wednesday that it had received a Wells Notice from the United States Securities and Exchange Commission.
The regulator has threatened to sue the exchange over its proposed Lend program, which would offer 4% interest on customer holdings of the USD Coin (USDC) stablecoin. Armstrong took to Twitter on Wednesday to vent his dismay over the lack of clarity from the regulator as to why it believes the product is a security. Meaival platforms Celsius and BlockFi offer similar products.
Speaking to Yahoo Finance on Wednesday, Celsius Network co-founder and CEO Alex Mashinsky said that everyone in the crypto industry was looking for clarity:
“I think we’re going through these murky waters right now and we need to get clarity and its going to take a little bit of time before we get the rules and we can start running faster.”
Mashinsky told Cointelegraph that Coinbase already provides yields on crypto assets such as Ether (ETH), so the SEC seems to have a particular issue with offering interest on USDC stablecoin deposits.
“The SEC claims yield on USDC may be a security if paid to non-accredited investors. Coinbase did not ask permission for all assets only for USDC.”
Celsius, which has more than $20 billion in assets under management, also pays yields on USDC and other stablecoins to non-accredited investors. However, Mashinsky said Celsius had pioneered the area, and its products “took a long time to perfect … it helps being the first to figure things out.”
When questioned about whether this means Celsius would be able to successfully navigate similar regulatory scrutiny to Coinbase, he replied:
“Everyone has to wait and see what the SEC will issue as regulation. Looks like Coinbase wants to take the SEC to court like XRP and prove they went beyond their charter.”
Billionaire investor and Dallas Mavericks owner Mark Cuban took to Twitter on Wednesday, advising Armstrong and Coinbase to “go on the offensive” and labeling the move as “Regulation via Litigation.”
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
— Mark Cuban (@mcuban) September 8, 2021
In a later tweet, he stated that by suing, the SEC “gets to play on their home court to regulate it,” adding that it could change how decentralized finance, or DeFi, works but also see it grow. Cuban urged Coinbase to be aggressive in its response to the threat of legal action for the greater good of the rest of the industry.
“It’s better for the industry that they take on the SEC rather than the SEC go after a small decentralized entity and get a quick judgment that becomes the law of the land for DeFi.”
Related: Crypto is too big to exist outside of public policies, warns SEC chair
Economics author Frances Coppola explained she believes that under the law, if interest is charged or levied on token lending, then these “loan agreements” are considered securities.
Really very simple, Brian. You can lend out your tokens for free, and other people can lend out your tokens for free. But if you, or they, charge interest on lending tokens, or profit in any other way from lending tokens, they are securities. https://t.co/kTMxNwmMkB
— (((Frances ‘Cassandra’ Coppola))) (@Frances_Coppola) September 8, 2021
Bloomberg took the view that SEC Chair Gary Gensler has just sent a warning shot to other crypto companies offering similar products in one of its most aggressive, recent moves against the industry.