You really don’t want to get on the SEC’s (aka Securities and Exchange Commission’s) bad side, and Coinbase (COIN) is learning that the hard way. News came out two days ago that the US crypto exchange platform received an SEC notice detailing that the regulator will be suing the platform for its product Coinbase Lend.
The product basically allows users to hold stablecoins (i.e. cryptocurrencies pegged to a traditional currency) and earn a 4% annual yield on them in exchange for allowing Coinbase to lend those stablecoin deposits to verified borrowers. The SEC’s issue with this is that it should be treated as an investment as users might deposit or ‘invest’ in stablecoins just to earn the 4%. Coinbase’s quarrel isn’t so much with the notice but the way the SEC approached things. The regulator allegedly failed to respond to Coinbase’s attempts to accommodate the SEC’s requests before the notice was sent without a heads-up.
Why it matters
Coinbase is known for tip-toeing around regulations, making the SEC’s backlash come across as regulators still not being well-versed enough with crypto. Even if the SEC backtracks now, the damage is already done for Coinbase whose shares fell by 3.2% after news of the notice.