Coinbase Falls After Disclosing Regulatory Inquiries Over Lending Product

Stock investors aren’t waiting for resolution of the matter even as the largest U.S. cryptocurrency exchange pushes back.

Sep 8, 2021 at 1:46 p.m. UTC
Updated Sep 8, 2021 at 8:32 p.m. UTC

Omkar Godbole is the senior reporter on CoinDesk's Markets team.

Coinbase shares slumped Wednesday after the largest U.S. cryptocurrency exchange disclosed that federal securities regulators had threatened to sue if it moves forward with a planned lending product.

The stock ($COIN) slid 4.1% on Nasdaq to $256, after falling over 4% on Tuesday amid a broad retreat in cryptocurrency markets.

Coinbase Chief Legal Officer Paul Grewal wrote late Tuesday in a blog post that the U.S. Securities and Exchange Commission (SEC) had sent the company a regulatory warning known as a Wells notice, threatening to sue the exchange if it launches the planned “Lend” program offering a 4% annualized yield on deposits of the dollar-linked stablecoin USDC.

While the regulator has alleged the crypto loan is an unregulated security, Grewal wrote in the blog post that the Lend program isn’t an investment contract or note and doesn’t qualify as security.

”Customers won’t be ‘investing’ in the program but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship,” he wrote. “And 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. What’s more, participating customers’ principal is secure and we’re obligated to repay their USDC on request.”

The SEC’s threat has already drawn the ire of the crypto community, with one top executive arguing on Twitter early Wednesday that the regulator is “directly undermining its own mission to promote those markets.”

Stock investors selling now don’t appear to be waiting for a quick resolution.

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Omkar Godbole is the senior reporter on CoinDesk's Markets team.

CoinDesk - Unknown

Omkar Godbole is the senior reporter on CoinDesk's Markets team.

Trending

1
CoinDesk - Unknown
Ex-Deutsche Telekom Team Launch Liquid Staking Division at Crypto Custodian Finoa

Newly formed Finoa Consensus Services is working with staking specialist StakeWise.

Newly formed Finoa Consensus Services is working with staking specialist StakeWise.

CoinDesk - Unknown
2
CoinDesk - Unknown
GameStop Unveils Crypto Wallet, Beeple’s Twitter Account Latest to Fall to Phishing Scam Hack and More

The most valuable crypto stories for Thursday, May 23, 2022.

The most valuable crypto stories for Thursday, May 23, 2022.

CoinDesk - Unknown
3
CoinDesk - Unknown
First Mover Asia: Funds Lost Billions in the Terra Collapse. Here are the Ongoing Effects; Bitcoin Sees Red

When a fund suffers a major dent to its token, the impact reverberates widely throughout the venture funding eco-system; most major cryptos fell despite gains in U.S. equity markets.

When a fund suffers a major dent to its token, the impact reverberates widely throughout the venture funding eco-system; most major cryptos fell despite gains in U.S. equity markets.

CoinDesk - Unknown
4
CoinDesk - Unknown
At Davos, Crypto Is No Longer on the Outside

Cryptocurrencies have taken a prominent role at the World Economic Forum's annual meeting in Davos, despite the mainstream finance world's apparent contempt for the sector.

Cryptocurrencies have taken a prominent role at the World Economic Forum's annual meeting in Davos, despite the mainstream finance world's apparent contempt for the sector.

CoinDesk - Unknown