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

#321

Post by [deleted] » Wed, Sep 08, 2021, 2:17 PM UTC

rmah wrote: post #313

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!"

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.

[deleted]

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

#322

Post by cwyers » Wed, Sep 08, 2021, 2:20 PM UTC

runawaybottle wrote: post #64

Aunche wrote: post #50

From the Coinbase page about Lend: >Lend your crypto to earn 4% APY >Your principal is guaranteed This definitely seems fishy. I don't see how this is possible unless if their position isn't levered. However, if they aren't levered, then why can't they just lend USDC themselves?

Someone correct me if I’m wrong, but I don’t believe banks are allowed to lever at the multiples necessary to offer a 4% interest rate (the collateral requirements are prohibitively too high). Coinbase is not a bank and doesn’t have to play by these rules.

> Coinbase is not a bank and doesn’t have to play by these rules.

Which is why this whole thing is such bullshit.

Coinbase: Hey, SEC, we're just giving you a heads-up that we're going to start doing something that's not in your jurisdiction. It's a loan!

SEC: Oh, so you're doing banking?

Coinbase: Nope, we're not a bank, we don't have to follow banking regulations.

SEC: ...get back in here.

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

#323

Post by dragonwriter » Wed, Sep 08, 2021, 2:22 PM UTC

darksaints wrote: post #303

Lazare wrote: post #191

Earlier quoted context omitted.

As in, the interest you might earn on a savings account? The rule is basically: "If you're giving someone else money in the hope of getting more money back later, it's a security UNLESS it fits into a list of exceptions, or if it meets the criteria to be added as a new exception." So a savings account would absolutely be a security, unless it fits into one of the recognised exceptions. One of those exceptions is the…

Coinbase's Lend program actually would be subject to other existing regulatory regimes. For example, the lending of SEC-regulated securities like stocks is not regulated by the SEC, it is regulated by FINRA. The Coinbase CEO notified the SEC, as they would be expected to as a SEC-regulated brokerage and publicly traded company , but their expectation was that the accounts would regulated by another entity, presumably…

> Coinbase's Lend program actually would be subject to other existing regulatory regimes.

How?

> For example, the lending of SEC-regulated securities like stocks is not regulated by the SEC, it is regulated by FINRA.

Cryptocurrencies are not generally securities, though some may be. To the extent this isn’t limited to securities, it would not be regulated by FINRA.

> their expectation was that the accounts would regulated by another entity, presumably the FDIC or FINRA.

FDIC doesn’t insure, and therefore regulate, cryptocurrency accounts. I’m reasonably certain Coinbase is aware of this fact. [0]

> The whole situation smells of a turf war between regulatory agencies,

Which other regulatory agency is asserting authority?

[0] https://help.coinbase.com/en/coinbase/other-topics/legal-pol....

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

#324

Post by seibelj » Wed, Sep 08, 2021, 2:22 PM UTC

pavlov wrote: post #319

yunohn wrote: post #139

Earlier quoted context omitted.

> 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.

No admission of wrongdoing, all money returned to investors, and IMO we didn't do anything wrong despite the SEC's opinion. I laugh to the bank because I've been in crypto for a decade!

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

#325

Post by [deleted] » Wed, Sep 08, 2021, 2:22 PM UTC

hajile wrote: post #314

tw04 wrote: post #304

Earlier quoted context omitted.

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,…

[deleted]

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

#326

Post by anonymoushn » Wed, Sep 08, 2021, 2:23 PM UTC

Alex3917 wrote: post #318

anonymoushn wrote: post #306

Earlier quoted context omitted.

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.

The question is "Why is there often 20% per year or higher cash-and-carry arbitrage for assets that have near zero carrying cost?" The answer might be that every crypto exchange has a 15% or higher chance of exploding per year and they've all just been extremely lucky, but I wonder if this is really the best explanation we can come up with.

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

#327

Post by toomuchtodo » Wed, Sep 08, 2021, 2:24 PM UTC

hajile wrote: post #314

tw04 wrote: post #304

Earlier quoted context omitted.

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,…

Your issue is not with the central bank. It is with the social contract a nation state has with its citizens (which is expressed through monetary policy), which can't be solved through code.

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

#328

Post by DennisP » Wed, Sep 08, 2021, 2:30 PM UTC

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…

Staked Ethereum is an entirely different sort of thing. You're not loaning money, you're earning it with the equivalent of mining.

Personally I've never seen the SEC consider loans as securities before, so it seems reasonable to ask for their reasoning.

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

#329

Post by darksaints » Wed, Sep 08, 2021, 2:31 PM UTC

dragonwriter wrote: post #315

darksaints wrote: post #299

Earlier quoted context omitted.

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 acco…

The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. You can't trade a lending account...you can either hold it, or liquidate it.

FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts.

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

#330

Post by thebean11 » Wed, Sep 08, 2021, 2:33 PM UTC

pjc50 wrote: post #295

Danieru wrote: post #240

Earlier quoted context omitted.

> 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 f…

> Can the borrower then selectively default if the X/Y exchange rate moves in their favor?

They very much can. For that reason though, the loans are always over collateralized so defaulting involves leaving some money on the table. That money could be less than hypothetical tax payments though..not sure.