The US Securities and Exchange Commission (SEC) has reportedly issued a Wells notice to Coinbase, indicating that the regulator intends to take enforcement action against the company over its upcoming yield-generating product called Lend. Coinbase CEO Brian Armstrong confirmed the notice in a tweet, saying that the company had been engaging with the SEC about Lend for months and had provided detailed information about the product.
According to Armstrong, the SEC responded by telling Coinbase that it viewed Lend as a security and that the company should either register it as such or suspend the launch of the product. However, Armstrong argues that Lend is not a security and that it should not be subject to securities laws. In a follow-up tweet, he said that the SEC had refused to offer any explanation for why it considers Lend to be a security and that the company had been left with no choice but to go public about the issue.
Coinbase announced its Lend product in June 2021, saying that it would allow customers to earn interest on select assets held on the platform. The product was initially set to launch in the US in the fall of 2021, but Coinbase pushed back the launch to make time for further discussions with the SEC.
The Wells notice comes as US regulators are increasing their scrutiny of the cryptocurrency industry. In recent months, the SEC has filed several high-profile lawsuits against cryptocurrency companies, including Ripple Labs and BitConnect, over alleged violations of securities laws. The agency has also been investigating decentralized finance (DeFi) platforms and other cryptocurrency projects that may be operating in violation of US regulations.
Coinbase is not the only company to face regulatory action over its yield-generating products. Last year, the SEC filed a lawsuit against BlockFi, another cryptocurrency platform, over its interest-bearing accounts, which the agency said were unregistered securities. BlockFi has denied any wrongdoing and is fighting the lawsuit in court.
The outcome of the SEC’s action against Coinbase could have significant implications for the cryptocurrency industry as a whole. If the agency succeeds in forcing Coinbase to register Lend as a security, it could open the door for other regulators to take similar action against other yield-generating products offered by cryptocurrency platforms. It could also lead to increased regulatory uncertainty and scrutiny for the industry, which has been grappling with a patchwork of regulations and a lack of clear guidance from US regulators.