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

blog.coinbase.com

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

#361

Post by thaumasiotes »

School-Cotton wrote: post #236
thaumasiotes wrote: post #190

Earlier quoted context omitted.

I'm guessing the concept is more like stock lending fees. You short a stock by borrowing shares and selling the borrowed shares. You'd short USDC the same way, if you could borrow them. The thing is that this really isn't an investment. An investment looks like this: - You ask me for funding for a project. I give you funding, in cash or in kind, and I get (partial) ownership of the project. If it does OK, I get some…

> You ask me for funding for a project. I give you funding, in cash or in kind, and I get (partial) ownership of the project. If it does OK, I get some money. If it does better than that, I get more money. If it does badly, I don't get much money. That’s venture capitalism which is just one of the many different types of investing. Buying pianos in order to lend them out is another type of investing.

> Buying pianos in order to lend them out is another type of investing.

But the example here is renting out a piano you already have, not obtaining a piano so you can rent it out.

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

#362

Post by [deleted] »

DennisP wrote: post #328
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.

[deleted]

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

#363

Post by SilasX »

quickthrowman wrote: post #348
anonymoushn wrote: post #306

Earlier quoted context omitted.

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

It’s not risk free, US Treasuries are ‘risk-free’ and anything that pays a higher yield has risk. If it didn’t have risk, it would be arbitraged down to the risk-free rate.

And even the risk-free rate on[1] Treasurys is being held down by tremendous Federal Reserve purchases. (The Fed doesn't buy crypto loans, or at least, won't until Goldman Sachs keeps some on their balance sheet.)

[1] at least short-term

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

#364

Post by spotline »

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…

They want to try to prevent lawsuits from their customers.

Agree, it is PR, they know it is a security and they have been able to get away with selling unregistered securities for so long, that they do have a legit reason to question why the SEC is just now starting to do their job.

I wonder if Texas will extend the decentralized 'enforcement' nature of the abortion bill also to those selling unregistered securities?

If you do not have to be directly harmed in order to sue Coinbase for breaking the law, you didn't have to wait for the state to actually enforce the laws that is... I don't think that is good policy, but if we are going to do it with abortion, why not extend it to money transmission and securities laws?

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

#365

Post by mandevil »

darksaints wrote: post #329
dragonwriter wrote: post #315

Earlier quoted context omitted.

> 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.

You have taken the Howey test, which defines what is a investment contract (and therefore requires SEC regulation), and replaced it with "if it's not securitized and its not tradeable it's not", which is, strictly as a matter of US law, completely and utterly wrong.

The whole point of the Howey test is to focus on what the transaction does, not it's form, because it was trying to prevent people from tap-dancing around the regulation, exactly like what Coinbase is attempting to do here.

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

#366

Post by yunohn »

seibelj wrote: post #324
pavlov wrote: post #319

Earlier quoted context omitted.

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!

> No admission of wrongdoing (…) IMO we didn't do anything wrong despite the SEC's opinion

No admission of wrongdoing is always a red flag, implying there was definite wrongdoing. It’s good that your opinion matters less than the SEC’s “opinion”. Atleast your investors got their money back, I guess…

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

#367

Post by phkahler »

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,…

>> 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 is simply not true. It's a fiction (of sorts) told by people who feel fucked by the financial system.

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

#368

Post by darksaints »

dragonwriter wrote: post #349
darksaints wrote: post #329

Earlier quoted context omitted.

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.

> The Howey test doesn't apply here. Yes, it does. > If it's not securitized and it's not tradable, it's not a security. Neither securitization nor marketability are requirements for something to be a security. > FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts. I suppose if Congress were w…

> The Howey test doesn't apply here.

No, it doesn't. The Howey test applies to commercial paper, tradability is inherent. In that sense, the Howey test isn't the only test for a definition of a security...it is a test that applies to anything that is a tradable financial instrument.

If the Howey test was the only test used to define a security, your bank account would be considered a security. But your bank account is absolutely and definitively not a security, and it is regulated by the FDIC, which has no authority over securities.

> I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security.

This is obviously and demonstrably false. Even if this product was a security, which it is not, the classification of something as a security does not mean that the SEC has authority.

Futures - a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority.

Equity Futures - a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority.

Equity Future Options - a security of a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority.

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

#369

Post by Spivak »

JumpCrisscross wrote: post #296
bjackman wrote: post #194

Earlier 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!

> 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.

I mean I think they're pretty upfront about that the fact that they're not FDIC insured which is your only real protection from the kinds of events you describe happening at a bank (sans the theft I guess).

I wouldn't put my money in a bank that wasn't covered by the FDIC but who am I to tell someone else they shouldn't be allowed to -- especially if interest is better.

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

#370

Post by dragonwriter »

darksaints wrote: post #368
dragonwriter wrote: post #349

Earlier quoted context omitted.

> The Howey test doesn't apply here. Yes, it does. > If it's not securitized and it's not tradable, it's not a security. Neither securitization nor marketability are requirements for something to be a security. > FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts. I suppose if Congress were w…

> The Howey test doesn't apply here. No, it doesn't. The Howey test applies to commercial paper, tradability is inherent. In that sense, the Howey test isn't the only test for a definition of a security...it is a test that applies to anything that is a tradable financial instrument. If the Howey test was the only test used to define a security, your bank account would be considered a security. But your bank account i…

> The Howey test applies to commercial paper, tradability is inherent.

Howey itself did not concern commercial paper, so if the Howey test only applied to that, it would be nonbinding dicta.

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