This looks like important context:
https://twitter.com/BennettTomlin/status/1435473153078214660
"Chief Legal Officer who wrote Coinbase’s response that includes the following nugget has sold $24mn worth of Coinbase stock recently"
The SEC has told us it wants to sue us over Lend. We don’t know why
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Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#292I'm confused. Isn't it Coinbase's responsibility to be GAAP compliant now that they are a public company? These would be standard things a CFO should understand....
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#293I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantl…
Agreed, and this line pretty much sums it up: > Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. "Give me money for a fixed period of time and I'll pay a guaranteed return on your principal. No, it's not an "investment", you're just lending it in connection with our existing relationship!"
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Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#294I actually initially wanted to be on Coinbase’s side here, but after a quick google of “Howey test” and reading even just the introduction on Wikipedia, I cannot imagine how they don’t see the SEC’s reasoning about Lend wrt Howey. If you want to argue that Howey does not apply or fight the decision/lawsuit, then fine. But feigning ignorance of something a (non-legal expert) programmer can connect the dots of instantl…
At the end of the day, the SEC is bought and paid for by the banks. They are essentially an HR department for banking execs. E.g. How many bank execs went to prison after the great recession? And where were the "Howey test" type threats from the SEC when it was actually needed? Coinbase offering interest bearing assets is taking business away from the banks. Hence, the SEC will be used as guard dogs by the banks to a…
How exactly is the SEC "bought and paid for by the banks"?
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#295Earlier quoted context omitted.
Exactly. Capital lent is always at risk; effectively risk-free interest is an abstraction created by deposit insurance. (Which, too, could fail) I don’t understand where DeFi yields come from, but I can tell you they’re not risk-free, for the same reason a physicist can tell you your perpetual motion machine doesn’t work without studying the blueprints.
> I don’t understand where DeFi yields come from Best I can tell from my research defi is being used for holder of volitile lower quality coins to exit without triggering a taxable event. This is based on how all the pools I found had clear lopsided supply of lending and borrowing. Stable coins all had the highest rates, with btc and eth being middling, and a flood of alt coins sitting in pools earning zero returns.…
> many borrowers do not care about the coins they put up as collateral.
Oh, you can use "shitcoin" X as collateral for a loan in "stablecoin" Y? Can the borrower then selectively default if the X/Y exchange rate moves in their favor? In which case this is just a funny-looking option.
> holders of paper gains exiting with debt to avoid taxable events
A similar scheme was used to evade income tax in the UK with "loan forgiveness" for a while, but was ruled unlawful. I suppose the more crypto steps you put in the harder it is to trace.
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#296Earlier quoted context omitted.
Agreed, and this line pretty much sums it up: > Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. "Give me money for a fixed period of time and I'll pay a guaranteed return on your principal. No, it's not an "investment", you're just lending it in connection with our existing relationship!"
I'm not an expert here but I read their argument as they don't expect this lending to be regulated as "investment" because the capital is not in theory at risk. So it's more like a savings account than an investment account. That's the impression I got from the article, but reading other comments in the thread it doesn't seem like that's an at all relevant definition of the term!
> the capital is not in theory at risk
The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt.
The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#297Earlier quoted context omitted.
Exactly. Capital lent is always at risk; effectively risk-free interest is an abstraction created by deposit insurance. (Which, too, could fail) I don’t understand where DeFi yields come from, but I can tell you they’re not risk-free, for the same reason a physicist can tell you your perpetual motion machine doesn’t work without studying the blueprints.
Banks want the deposit insurance to fail because once the government chips in they realized a profit on the bad loans they made. It's a well known moral hazard.
Deposit insurance kicks in only after the bank has failed, and cannot be used to realise a profit. At least in the real world.
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#298Earlier quoted context omitted.
Agreed, and this line pretty much sums it up: > Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. "Give me money for a fixed period of time and I'll pay a guaranteed return on your principal. No, it's not an "investment", you're just lending it in connection with our existing relationship!"
Read the securities act for once. The exceptions make the rule. Especially the big glaring exception for securities maturing in less than 270 days being completely exempt from the act no matter the nature of the transaction. There is a difference between excepted practice, regulator musings, and using a plain reading of the law no matter what people think. Protip: the regulator has no idea which part of the law you a…
> securities maturing in less than 270 days being completely exempt from the act
This is false. Commercial paper (not any security) maturing in less than 270 days is exempt from registration. (Like shares in private companies.)
The other provisions of the Securities Act of 1933, as amended, still apply.
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#299Earlier quoted context omitted.
I'm not an expert here but I read their argument as they don't expect this lending to be regulated as "investment" because the capital is not in theory at risk. So it's more like a savings account than an investment account. That's the impression I got from the article, but reading other comments in the thread it doesn't seem like that's an at all relevant definition of the term!
They try to make it sound like they didn't expect Lend to be treated like an investment, but it's clear that's a load of bullshit. If they didn't think the lending program was a security, they wouldn't have gone to the SEC about it.
Theyre a public company (regulated by the SEC), offering SEC-regulated services. Of course they notified the SEC. The twitter thread that got merged with this thread was pretty clear about it: they notified the SEC, but they also notified other regulatory bodies and had the full expectation that the lending accounts would be regulated by another entity because they are not securities.
Re: The SEC has told us it wants to sue us over Lend. We don’t know why
#300Earlier quoted context omitted.
Agreed, and this line pretty much sums it up: > Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. "Give me money for a fixed period of time and I'll pay a guaranteed return on your principal. No, it's not an "investment", you're just lending it in connection with our existing relationship!"
Securities lending, the repo market, is a large well understood and regulated existing market.
Securities lending is regulated by FINRA, not the SEC.