- Coinbase announced that it will be dropping its Lend crypto lending program.
- This is a dramatic turnaround for Coinbase, who had defiantly stated that the SEC, despite constant communication between the two issued the ‘Wells Notice’.
After a prolonged battle between leading cryptocurrency exchange Coinbase and the US Securities and Exchange Commission (SEC), the exchange announced on Tuesday that it will be shelving its Lend program. Earlier, the SEC had warned Coinbase with legal action if they decide to go ahead with the program. This seems to be a dramatic turnaround as far as Coinbase is concerned as they had defiantly stated that the SEC, despite constant communication between the two, had issued the Wells Notice earlier this month. Coinbase, in fact, has been in eye of the storm of regulatory authorities for some time now. In March, the Commodity Futures Trading Commission (CFCT) in the US had filed charges against the exchange for misleading reporting on its GDAX platform.
What is the Lend Program?
Coinbase’s Lend program was expected to let users to earn interest of around 4% APY by lending their holdings of Circle’s stablecoin USDC. However, it ran into SEC’s scrutiny, which found out that such a program would put investors’ investment at risk and would challenge the security of the protocol.
Announcing the discontinuation, Coinbase in a blog said that the SEC still hasn’t given them the exact reason as to why they termed the program as risky. However, they said they would follow up with the regulators for more details.
Earlier on 7 September, Coinbase CEO Brian Armstrong in a series of tweet had accused the regulator of being partial. He said that the Wells Notice was totally uncalled for and was issued without giving any proper justification.
Message for others
Other leading cryptocurrency exchanges like Bitfinex and Binance have been under fire too. With Coinbase succumbing to such pressure, in future regulators will definitely have an upper hand. SEC head Gary Gensler has been voicing his concern about the crypto trading and regulations, which may lead to adoption of some stringent law in the future.
Not just the regulators, the investor authorities are also asking the exchanges to tighten their regulatory norms. In fact, on Monday, some investor advocacy groups had sent a letter to SEC chairman urging him to regulate the cryptocurrency industry. It was signed by the Americans for Financial Reform Education Fund, the Consumer Federation of America, and others. The letter particularly singled out stablecoins and Tether and stressed that they could pose significant risks to investors.
This could be a warning signal for other exchanges who plan to launch similar programs in future or are in the process of developing a lend program of their own. Constant communication between exchanges, regulators and investors are crucial at this stage, which allow smooth functioning of such programs in future.