Protocol | Fintech

Coinbase CEO blasts SEC plan to block a crypto lending feature

The battle has reignited the debate on whether cryptocurrencies are securities.

Coinbase CEO Brian Armstrong

Coinbase CEO Brian Armstrong hit back at the SEC Tuesday over its move to block a feature that would let users earn interest by lending their crypto assets.

Photo: Michael Short/Bloomberg via Getty Images

Coinbase CEO Brian Armstrong hit back at the SEC over its move to block a new feature that would let users earn interest by lending their crypto assets.

Armstrong kicked off the online condemnation of the agency with a Twitter thread late Tuesday evening: "Some sketchy behavior coming out of the SEC recently."

He was referring to an SEC letter, formally known as a Wells notice, to Coinbase declaring that the agency plans to sue the company over a new product, called Lend, which would let users lend their USDC stablecoins to verified borrowers, allowing them to earn 4% annually.

The dispute highlighted brewing tensions between the crypto industry, led by Coinbase, and the SEC, led by Chairman Gary Gensler, who has taken an increasingly critical view of the industry. It also resurfaced the debate over whether cryptocurrencies should be classified as currencies or securities.

The SEC could not be immediately reached for comment.

In a blog post, Paul Grewal, Coinbase's chief legal officer, said the company shared details of the plan with the SEC but the agency has not offered a clear explanation why it views Lend as a security.

"We answered all of the SEC's questions in writing and then again in person," Grewal said. "But we didn't get much of a response. The SEC told us they consider Lend to involve a security, but wouldn't say why or how they'd reached that conclusion."

Armstrong sounded even more combative in the Twitter thread, saying, "They responded by telling us this lend feature is a security. Ok — seems strange, how can lending be a security?"

That prompted some scathing responses that ridiculed Armstrong's question, including one that said, "Lending has always been a security. We literally had a financial collapse over debt securities." An official SEC account tweeted a video explaining what bonds are.

Stephen Diamond, a business law professor at Santa Clara University, said there are "long-standing judicially created tests" for evaluating financial products like the one Coinbase is planning to roll out.

"The SEC has apparently decided that Lend fits one or both of these tests," he told Protocol. "Any security must be registered with the SEC or be issued under an available exemption from registration."

Coinbase will not launch Lend "until at least October," Grewal said, as the company tries to get some clarity on the SEC's position.

"Coinbase continues to welcome additional regulatory clarity," he wrote. "Mystery and ambiguity only serve to unnecessarily stifle new products that customers want and that Coinbase and others can safely deliver.

But Armstrong suggested Coinbase may take the matter to court, tweeting, "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."

Coinbase's dilemma led some crypto enthusiasts to revisit the company's decision to suspend trading in XRP, the cryptocurrency used by Ripple, after the SEC sued the company arguing that XRP is not a currency but a security and therefore subject to securities laws.

In an apparent dig at Coinbase, Ripple CEO Brad Garlinghouse responded to Armstrong's tweet with a GIF of Bruce Willis' character in "Die Hard" with the caption, "Welcome to the party, pal!"

Protocol | Policy

Why Twitch’s 'hate raid' lawsuit isn’t just about Twitch

When is it OK for tech companies to unmask their anonymous users? And when should a violation of terms of service get someone sued?

The case Twitch is bringing against two hate raiders is hardly black and white.

Photo: Caspar Camille Rubin/Unsplash

It isn't hard to figure out who the bad guys are in Twitch's latest lawsuit against two of its users. On one side are two anonymous "hate raiders" who have been allegedly bombarding the gaming platform with abhorrent attacks on Black and LGBTQ+ users, using armies of bots to do it. On the other side is Twitch, a company that, for all the lumps it's taken for ignoring harassment on its platform, is finally standing up to protect its users against persistent violators whom it's been unable to stop any other way.

But the case Twitch is bringing against these hate raiders is hardly black and white. For starters, the plaintiff here isn't an aggrieved user suing another user for defamation on the platform. The plaintiff is the platform itself. Complicating matters more is the fact that, according to a spokesperson, at least part of Twitch's goal in the case is to "shed light on the identity of the individuals behind these attacks," raising complicated questions about when tech companies should be able to use the courts to unmask their own anonymous users and, just as critically, when they should be able to actually sue them for violating their speech policies.

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Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

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Protocol | Fintech

When COVID rocked the insurance market, this startup saw opportunity

Ethos has outraised and outmarketed the competition in selling life insurance directly online — but there's still an $887 billion industry to transform.

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Protocol | Workplace

Remote work is here to stay. Here are the cybersecurity risks.

Phishing and ransomware are on the rise. Is your remote workforce prepared?

Before your company institutes work-from-home-forever plans, you need to ensure that your workforce is prepared to face the cybersecurity implications of long-term remote work.

Photo: Stefan Wermuth/Bloomberg via Getty Images

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Protocol | Enterprise

How GitHub COO Erica Brescia runs the coding gold mines

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Photo: GitHub

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