Coinbase Cancels its Lend program

Coinbase Cancels its Lend program

By I-HODL | A Crypto Journey | 21 Sep 2021

So guys, it seems as though the spark lit at Coinbase in its fight to defend its Lend program from the oversight of the Securities and Exchange Commission (SEC) has sputtered and gone out before it could become a flame. On Friday last, the cryptocurrency exchange quietly cancelled its Lend product after the SEC issued a Wells notice threatening legal action. Let's unpack this.

What is a Wells Notice?

A Wells Notice is a letter issued by the SEC to an individual or company, notifying the respondent of the substance of charges the regulator intends to bring against him in court. A Wells Notice is usually issued prior to any formal legal action being filed. 

The SEC  & operators in the crypto space

The SEC has in the past been locked in legal battles with stakeholders in the crypto space, with both sides arguing over the framework that defines cryptocurrency offerings. 

The SEC leans towards defining cryptocurrencies as securities or investment contracts, i.e., belonging to a category of investments that generally entail either a stake in an entity or debt to it. In this regard, the SEC, relying on the Howey Test, argues that anyone offering securities to the American public must register that offering with the SEC and disclose its financial information, as well as decision-making power to the public.

According to the Howey Test following the 1946 case, SEC v. WJ Howey Co., “an investment contract... means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

Now, that's an interesting debate: Is cryptocurrency an investment contract or security? According to some SEC officials, Bitcoin and Ethereum are not securities. For other crypto-assets, it's not so clear. 

Legal Battles 

In any event, in a slew of legal battles over the past few years, the SEC has taken the battle directly to the crypto space and has faced off against blockchain technology company,, Canadian messaging app, Kik, Telegram Group,  and most recently, Ripple Labs

And though the battleground has been the United States courtroom, the outcome of cases fought in the US can affect the rest of the world. 

For example, as Telegram CEO Pavel Durov explained after his organization threw in the towel in their fight with the SEC: "The US court declared that Grams couldn't be distributed not only in the United States, but globally. Why? Because, it said, a US citizen might find some way of accessing the TON platform after it launched. So, to prevent this, Grams shouldn’t be allowed to be distributed anywhere in the world – even if every other country on the planet seemed to be perfectly fine with TON. This court decision implies that other countries don’t have the sovereignty to decide what is good and what is bad for their own citizens."

Spotlight on Crypto Reward and Lending

Most recently, regulatory focus has shifted to also include cryptocurrency reward and lending programs, as regulators have brought charges against or issued cease and desist notices to cryptocurrency agencies offering earn rewards, lending and DeFi programs. Among those in the hot seat are Celsius, Nexo, Uniswap Labs and, inevitably, Coinbase. 

In the end, Coinbase can't Lend

At the end of June 2021, Coinbase signaled plans to introduce a Lend program, proposing to "allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC). And though Coinbase's offer of a 4% annual percentage yield (APY) for a crypto savings account is not the highest offering in the space, it is still significantly higher than those afforded by savings accounts at most traditional banks.

Following this revelation, the SEC issued a Wells Notice to Coinbase at the beginning of September and at first it appeared as though Coinbase was prepared to challenge the regulatory body.

In a story time thread on Twitter, Coinbase CEO Brian Armstrong accused the regulatory body of sketchy behavior while the organization's legal officer, Paul Grewal posted a blog on the exchange's website insisting that Coinbase had proactively engaged the SEC, maintaining that its Lend program did not qualify as an investment contract or a security and questioning the regulatory body's threat to sue.

Nevertheless, for all the furor, the organization has chosen the path of least resistance. Coinbase is waving the white flag. Last Friday, the organization  quietly updated its June 29th blog to indicate that though it continues to pursue its stated goal to "create great products for our customers and to advance our mission to increase economic freedom in the world", its USDC APY program will not be launched, at least until there is regulatory clarity for the crypto industry as a whole.

Lend, it seems, has been shifted to the backburner for the foreseeable future.


So that's it in a nutshell, guys. Thanks again for stopping by.

But before you go, I'd love to know: What are your thoughts on all of these developments?

Am I a prophet of doom and gloom amplifying a storm in a teapot, or do you think that these developments as regulators move against cryptocurrency offerings and lending instruments could have negative consequences for the industry as a whole? 

Until the next time, guys! Arriverderci!





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Navigating the ebbs and flows of crypto trading, and writing about it.

A Crypto Journey
A Crypto Journey

There's nothing more exhilarating than navigating the ebbs and flows of crypto trading. I have sea legs today, but truth be told, I've been lost at sea more than I care to remember and I have weathered quite a few storms as a trader. But the crypto-verse has also rewarded my resilience, and so after every dip, I get right back to sailing in pursuit of me buried treasure. I love this digital evolution and am proud to be a part of it. These are the tales of a crypto adventure! 

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