Coinbase has revealed that the US Securities and Exchange Commission (SEC) has threatened to sue if the crypto exchange giant launches its Lend yield-earning program, which the regulators consider a security.

In a blog post published today (September 8), Coinbase Chief Legal Officer Paul Grewal said that the SEC  has issued the exchange with a Wells notice, warning it against launching the Lend program. A Wells notice is an official statement of intent from a regulator to sue a company in court.

Coinbase Lend would allow eligible users to earn interest on selected assets on the exchange, beginning with 4 per cent APY on the stablecoin USDC.

Grewal expressed his surprise and frustration at the SEC’s stance, stating: “Coinbase’s Lend Program doesn’t qualify as a security… although Lend customers will earn interest from their participation in the program, we have an obligation to pay this interest regardless of Coinbase’s broader business activities.”

Grewal said that the only clarification Coinbase has been provided is that the lending program is currently being assessed under the 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 said that Coinbase has rejected the SEC’s request for the names and contact information of every individual on the Lend waitlist because they “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.”

Meanwhile Coinbase CEO Brian Armstrong and many other prominent crypto folk have been tweeting about the matter today, too…

Some even seem to be questioning whether some shadowy, insider-information has been happening behind the scenes… but that is, of course, pure speculation…

Coinbase is also dismayed and confused by the SEC warning in light of SEC Chairman Gary Gensler’s clear recent urgings of crypto firms to “work with them” and effectively “come in from the cold” so that they can operate under public frameworks.

“The SEC has repeatedly asked our industry to ‘talk to us, come in’,” said Grewal. “We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.

“A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation.”

Grewal stated that Coinbase will be holding off the launch of the lending program until at least October, while it waits for further clarification from, and dialogue with, the SEC.


A sign of things to come for crypto-lending firms?

Some prominent crypto-lending companies that might be feeling nervous about this Coinbase news today are BlockFi, Celsius, and Nexo.

All three are well established businesses offering crypto lending and high-yield services to their wide base of global customers. Nexo had already, however, recently restricted its crypto-earning service in several US states.

Since early July, BlockFi has already been facing regulatory heat in a handful of US states related to its high-interest products.

As for Celsius, which had been headquartered in London, it announced in June that it was moving its base of operations to the US, citing regulatory uncertainty around crypto in the UK as the primary reason.

Time will tell if Celsius has jumped out of the frying pan and into the fire… or indeed whether clear and strong US regulatory moves will, in fact, help this and other sectors of crypto.

If Celsius CEO Alex Mashinsky is concerned about the SEC vs Coinbase news, or about yesterday’s massive crypto market dump, he certainly wasn’t showing it on Twitter at the time this article went to press…