The US Securities and Exchange Commission (SEC) has warned Coinbase not to pursue a crypto yield program it plans on rolling out.
The regulator considers the scheme to be a security, according to media reports.
This coincided with a statement by Coinbase CEO Brian Armstrong who tweeted earlier today that SEC had been concerned.
Armstrong said that Coinbase had been in touch with SEC over the Coinbase Lend program, which offers 4% annual yield returns on deposits carried out in USDC stablecoin.
He confirmed that SEC had said the program would be treated as a security, but failed to provide any additional explanation.
“They refuse to tell us why they think it's a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why”, he added.
Armstrong’s confusion was doubled by the fact that SEC would treat Coinbase's proposed lending program as a security while not taking action against other similar options on the market. According to him, BlockFi and Celsius already offer crypto yields products.
He then urged the regulator to publish guidance so that Coinbase may follow and stay within the mandated regulation.
Meanwhile, Coinbase chief legal officer Paul Grewal stated that customers wouldn’t be investing in the program directly, but rather lend the USDC they hold. He added that Coinbase was obligated to pay customers interest regardless of the company's “broader business activities”.
He further explained that SEC may be testing the lending product under the so-called Howey Test.
“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. The SEC won’t share the assessment itself, only the fact that they have done it”, Grewal explained.
SEC chair Gary Gensler has repeatedly called on crypto firms in the US to collaborate with the regulator lest they become a target for investigation. Coinbase seems to be doing just that.