1) Some really sketchy behavior coming out of the SEC recently. Story time…
2) Millions of crypto holders have been earning yield on their assets over the last few years. It makes sense, if you want to lend out your funds, you can earn a return. Everyone seems happy.
3) A bunch of great companies in crypto have been offering versions of this for years. Coinbase came out recently and said we would be launching our own version.
4) We were planning to go live in a few weeks, so we reached out to the SEC to give them a friendly heads up and briefing
5) They responded by telling us this lend feature is a security. Ok – seems strange, how can lending be a security? So we ask the SEC to help us understand and share their view. We always make an effort to work proactively with regulators, and keep an open mind.
6) 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.
7) Look….we’re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it’s nice if you actually enforce it evenly across the industry equally btw).
8) But in this case they are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors. Whatever their theory is here, it feels like a reach/land grab vs other regulators.
9) Meanwhile, plenty of other crypto companies continue to offer a lend feature, but Coinbase is somehow not allowed to.
10) Gensler in his confirmation hearing: “It’s important for the SEC to provide guidance and clarity,” Gensler said. “Sometimes that’s a clarity that will be a thumbs up, but even if it’s thumbs down, it’s important to provide that.” March 2, 2021
11) If you don’t want this activity, then simply publish your position, in writing, and enforce it evenly across the industry.
12) Ostensibly the SEC’s goal is to protect investors and create fair markets. So who are they protecting here and where is the harm? People seem pretty happy to be earning yield on these various products, across lots of other crypto companies.
13) Shutting these down would arguably be harming consumers more than protecting them, and by preventing Coinbase from launching the same thing that other companies already have live, they’re creating an unfair market.
14) In May of this year I traveled to DC to meet with every regulator and branch of government I could.
15) The SEC was the only regulator that refused to meet with me, saying “we’re not meeting with any crypto companies”. This was right after we became the first crypto company to go public in the U.S.
16) Gensler had been confirmed just a month prior, so I brushed it off as the SEC still getting its feet under it. Now I’m not so sure.
17) We’ve always tried to be good actors in the space – leaning in to sensible regulation even when it is difficult or expensive. We try to think about what products we would want for ourselves, and what risks we would want our families to be aware of, before launching products.
18) We will keep following this approach.
19) Yet here, we’re being threatened with legal action before a single bit of actual guidance has been given to the industry on these products.
20) If we end up in court we may finally get the regulatory clarity the SEC refuses to provide. But regulation by litigation should be the last resort for the SEC, not the first.
21) Our door remains open. Hopefully the SEC steps up to create the clarity this industry deserves, without harming consumers and companies in the process. America could really use us all working together to figure this out right now.