The SEC has told us it wants to sue us over Lend. We don’t know why • Hacker News Board

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#311

Post by late2part » Wed, Sep 08, 2021, 2:01 PM UTC

bjackman wrote: post #194

dustintrex wrote: post #71

Earlier 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!

It's not at risk as in it's FDIC insured?

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#312

Post by SilasX » Wed, Sep 08, 2021, 2:01 PM UTC

plainnoodles wrote: post #310

JumpCrisscross wrote: post #296

Earlier quoted context omitted.

> 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.

It's even more obvious when you flip the relationship around. What's it called when your broker lends you money, at a fixed interest rate, for you to then go and invest in risk assets? It's a margin loan. Which I hope I don't need to say is NOT risk-free.

Fair point, but when you take a margin loan, you also don’t have to register it as a security.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#313

Post by rmah » Wed, Sep 08, 2021, 2:02 PM UTC

dustintrex wrote: post #71

uncomputation wrote: post #23

I 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!"

From the information that Coinbase has given, it's no more an investment than a savings account is. More importantly, it's not a security since you can't sell your loan to someone else.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#314

Post by hajile » Wed, Sep 08, 2021, 2:05 PM UTC

tw04 wrote: post #304

JumpCrisscross wrote: post #296

Earlier quoted context omitted.

> 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.

Sure, they want to rewind to a time when your bank account was unsecured and banks themselves had 0 regulation. Because it's a heck of a lot easier to make money when you can take massive risks with other people's money while lying to them and claiming there's no risk at all.

Central banking is itself insecure.

In 2008, the banks failed. They put a gun to the heads of everyone in America and said "bail us out or you lose everything". So the bankers kept all their profits and everyone else lost big.

That is just one of many central bank failures. The only difference from the many small bank system that came before is that instead of a bank here or there failing and everyone else moving on, all banks fail at the same time. Don't count on that FDIC money either. It is setup as if only one or two banks will partially fail at any given time. In massive failures, there's not enough money to secure what they promise to secure (thus the gun to your head).

The real answer is to do away with the fractional reserve lending where a bank gets $100 and then proceeds to loan out $900. That would require banks to have much smaller profit margins and maybe even become not-for-profit entities, but we certainly can't entertain that idea..

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#315

Post by dragonwriter » Wed, Sep 08, 2021, 2:08 PM UTC

darksaints wrote: post #299

ziml77 wrote: post #257

Earlier quoted context omitted.

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.

> the full expectation that the lending accounts would be regulated by another entity because they are not securities.

Why do they think they aren't securities?

Because they obviously meet the Howey test, and while they may have “expected” that they would be regulated by another body (and which and on what basis?), they obviously haven’t done what it would take to make them (for instance) FDIC-insured depository accounts rather than SEC-regulated securities.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#316

Post by ketzu » Wed, Sep 08, 2021, 2:08 PM UTC

JumpCrisscross wrote: post #238

jrochkind1 wrote: post #3

Seems to be gone from the internet. Can't find it in archive.today or archive.org either. reddit comment thread: https://www.reddit.com/r/CryptoCurrency/comments/pk2rjl/coin... Which points to a tweet thread from Brian Armstrong of Coinbase that is still there for now.... https://twitter.com/brian_armstrong/status/14354409980546539... unrolled (and probably will still be there even if tweets deleted?) https://threadr…

> Seems to be gone from the internet It was a PR post written to rile a user base without knowledge of the financial system or securities law. Unfortunately, it made it into regulatory and political channels and is backfiring massively. (If the general counsel and CEO of a $70bn exchange pretend to be this clueless, there are almost certainly deeper problems at the company.)

> It was a PR post written to rile a user base without knowledge of the financial system or securities law.

After reading the reddit thread: It seems to work in that case at least.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#317

Post by dragonwriter » Wed, Sep 08, 2021, 2:09 PM UTC

mthoms wrote: post #175

dustintrex wrote: post #71

Earlier 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!"

Excuse my ignorance but how is that any different from "interest"?

> Excuse my ignorance but how is that any different from "interest"?

Corporate fixed-coupon bonds are corporate offerings of simple interest-bearing instruments, and are regulated as securities.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#318

Post by Alex3917 » Wed, Sep 08, 2021, 2:11 PM UTC

anonymoushn wrote: post #306

tylerhou wrote: post #198

Earlier quoted context omitted.

I don’t understand how you can make a profit larger than the risk-free rate of return without at least some risk; i.e. any risk free profit should be arbitraged away. If Coinbase has truly found risk-free profit it would be more profitable to sell it as an investment to some hedge fund, not give away free returns to retail.

The risk-free rate in this sector is substantially higher than 4%.

If the value of crypto is that it drives down the risk of lending by bringing transparency to the assets of borrowers, then how can the interest rate be higher than in the normal financial system? The fact that there is less risk but interest rates are higher should tell you everything you need to know about why this is a scam.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#319

Post by pavlov » Wed, Sep 08, 2021, 2:12 PM UTC

yunohn wrote: post #139

seibelj wrote: post #119

Earlier quoted context omitted.

The SEC can and does provide candid advice. I know entrepreneurs who have had lengthy calls with both state and federal SEC reps who will give straight talk. This is not that. This is preparation to make a court case to use as precedent to attack the industry. I feel the SEC is being a bad actor - stifling innovation rather than encouraging it. Over the last 10 years the HN chattering class has dismissed crypto endle…

> I laugh all the way to the bank… You ran an ICO that settled with the SEC. I’m not clear on what value you offered to the public, or how you justify “making bank”?

It’s incredible. This guy sold $15M USD of worthless tokens to the public. Investors lost their money.

Instead of feeling ashamed, he’s proud of having settled the case out of court and “laughed all the way to the bank”.

Crypto ethics are truly well hidden.

Re: The SEC has told us it wants to sue us over Lend. We don’t know why

#320

Post by qeternity » Wed, Sep 08, 2021, 2:13 PM UTC

dcolkitt wrote: post #263

qeternity wrote: post #176

Why do some in the crypto community think that technology magically changes the fundamental tenets of a given activity? Nobody would argue that it's impossible to commit wire fraud with a cellphone because it's wireless. And it's similarly disingenuous to argue the Howey test is irrelevant because it's decades old. Is the First Amendment just some dusty old law that doesn't apply anymore because the Founding Fathers…

Did Uber not fundamentally change the taxi and limousine laws? Did AirBnB not fundamentally change hotel and rental law? Did file sharing not fundamentally change copyright enforcement? Did Internet pornography not fundamentally end obscenity laws? Does delta-8 not fundamentally change cannabis prohibition? The point is that technology very often can and does magically change the tenets of an activity. This is just a…

Please show me which laws Uber and Airbnb have changed. If anything, those companies have trended towards existing regs.

File sharing creating an entire industry of copyright enforcement, far from whatever you’re suggesting.

Internet pornography ending obscenity laws? What in the hell are you on about? Those laws changed before the Internet and not because of technology.

Drug laws have changed for no reason other than the fact that society has become more socially liberal.

You are conflating the fact that society is changing at the same time tech is advancing (btw - both have been occurring for millennia simultaneously).