US SEC to Sue Coinbase’s Crypto Yield Lending Product

The US Securities and Exchange Commission (SEC) plans to regulate US-listed Coinbase’s yield lending product. It will sue the crypto exchange if Coinbase launches the crypto yield product. Coinbase CEO Brian Armstrong strongly disagrees with the SEC warning.

Coinbase’s upcoming ‘Lend’ feature allows users to earn interest by lending cryptocurrencies. With the new Lend product, Coinbase will run a pool focused on stablecoin USD Coin (USDC).

Thereby, Coinbase wants to compete with popular decentralized finance (DeFi) products, like Compound and Aave. Coinbase promises 4% annualized interest rate for users contributing to the pool.

However, the US securities regulator determines the product to be a security, and intends to legally charge Coinbase. The SEC is opening a formal investigation, according to Coinbase.

In a tweetstorm, Coinbase CEO Brian Armstrong criticizes SEC’s handling of Coinbase’s crypto yield lending product. Coinbase disputes the SEC’s determination saying Lend is not an investment contract or note. Yet, Coinbase now plans to delay the launch until at least October.

Coinbase Competes with DeFi platforms Compound, Aave

In addition to the USDC yield product, Coinbase is offering other yield products via proof-of-stake protocols like Ethereum 2.0.

This is a recent incident highlighting the rising concern on interest-bearing crypto assets and products from the US regulator.

SEC chairperson Gary Gensler is seeking more authority to oversee the crypto market, in particular the DeFi area. Some crypto platforms are operating securities, bringing them under the SEC’s oversight, according to Gensler.

Last week, news broke that Uniswap Labs, behind the largest Ethereum-based decentralized exchange platform Uniswap, is under investigation by the SEC. They are probing Uniswap’s investor and marketing practices.

This July, the U.S. state of New Jersey ordered the crypto platform BlockFi to stop offering interest-bearing accounts.

“If we end up in court we may finally get the regulatory clarity the SEC refuses to provide. But regulation by litigation should be the last resort for the SEC, not the first,” Armstrong says on Twitter.

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