Crypto exchange Coinbase CEO Brian Armstrong responded Tuesday evening to planned enforcement by the U.S. Securities and Exchange Commission pertaining to the firm’s recently announced yield-generating product.
The firm, which went public on the Nasdaq stock exchange in April, received a subpoena by the SEC less than three months after it announced to the market a product, dubbed Lend, that would allow users the opportunity to earn yields on deposits of USDC on its platform. That's a much juicer yield than what is offered by consumer banks, which provide less than a basis point for savings accounts.
Armstrong said that the exchange contacted the SEC about its yield product and the SEC told Coinbase that the offering is a security but gave no guidance on the compliance with existing laws.
In a tweet, Armstrong added:
"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."
According to Armstrong, the SEC "refused" to meet with the chief executive during a visit to DC earlier this year.
"The SEC was the only regulator that refused to meet with me, saying 'we're not meeting with any crypto companies,'" Armstrong wrote. "This was right after we became the first crypto company to go public in the U.S."
In a blog post, the firm's chief legal officer Paul Grewel said that Coinbase has "been proactively engaging with the SEC about Lend for nearly six months."
He said that if the product officially launched, the SEC would sue:
"Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem. Rather they have now told us that if we launch Lend they intend to sue. Yet again, we asked if the SEC would share their reasoning with us, and yet again they refused."
BlockFi, a crypto financial services provider, has also been under fire for a similar product, which offers users a high-yield when they park stablecoin with the company. Five states have said that the firm has violated securities regulations and laws.
In addition to plans to offer a yield on USDC held by the company, Coinbase offers other yield generating services via proof-of-stake protocols like Ethereum 2.0 and Tezos. A source said the SEC's action does not apply to staking.
This post has been updated for clarity. Lend was announced earlier this year, not launched.
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