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!"

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins