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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

#391

Post by wallacoloo »

Denvercoder9 wrote: post #249
mthoms wrote: post #185

Earlier quoted context omitted.

As a kid I made over 4% APY interest on my savings account. Risk free. Yes, I realize their are important differences here but I don't think that getting a 4% risk-free return should be seen as an "obvious" problem.

It's not about the exact percentage, it's about it being significantly higher than the risk-free interest offered elsewhere in the market (which is <1%). That's a big red flag that it's not actually risk-free.

This is misleading. Different people asses risks differently. I have extremely little insight into the existing financial system: does my bank really have good security over their servers? Do they practice recovery on a regular basis so that there’s confidence my money will still be there when failures do happen? Will the IRS make a typo that results in my bank assets being frozen?

I have zero insight into that. A lot of people seem to take it foregranted that existing bank systems are infallible. I have no way to assess that beyond the test of time (which is still worth something).

Cryptocurrency lending platforms have similar types of risk: what’s the feasibility of the thing being hacked. For most of these, I can actually do a very rough assessment because the code is public, the team is usually public (and has a track record) and there are probably some security audits by groups who either are or aren’t yet reputable. I have more tools for assessing risk.

So yes, some people will judge the risk of the 0.1% system to be lower than the 4% system. Some people will judge the risk to be the reverse (more practical if you substitute Compound/Aave for the 4% system). But you can’t separate the risk of a system from the users of that system so cleanly. There’s a very large subjective component to it.

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

#392

Post by darksaints »

dragonwriter wrote: post #389
darksaints wrote: post #387

Earlier quoted context omitted.

Could you give me an example of an investment contract that is not tradable? You have me straining at the imagination here. Even if you are right that tradability is not a requirement of a security, and even if you are right that this meets all of the requirements of a security, I still don't see how the SEC has jurisdiction here. The Securities Exchange Act explicitly exempts bank notes with duration of less than 9…

> The Securities Exchange Act explicitly exempts bank notes with duration of less than 9 months from SEC regulation. No, it is broader than that; it is not limited to bank notes or durations less than 9 months, but to any bank-issued security; but since Coinbase is not a bank as defined in the Securities Exchange Act [0], the bank-issued securities exception is immaterial. [0] to wit, per 15 USC § 77c(a)(2): «any nat…

> but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.

It is not required for it to be issued by a bank for it to be exempt.

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

#393

Post by [deleted] »

throwaway34241 wrote: post #382
hajile wrote: post #314

Earlier quoted context omitted.

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,…

> So the bankers kept all their profits and everyone else lost big. I believe the government actually made a profit on the bailouts (the TARP program), probably because they bought while prices were low. Not that there isn’t a lot to criticize about how things went down. I wouldn’t put too rose-colored-glasses on the pre-central bank era either, we still had financial panics and bank failures and the fact that the wo…

[deleted]

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

#394

Post by SilasX »

arcticbull wrote: post #44
bpodgursky wrote: post #29

Earlier quoted context omitted.

Brian's concern in the tweet thread is that a lot of other companies are already providing lending services without SEC action, putting Coinbase at a disadvantage. The rule should be applied across the industry in a standard manner, no matter which direction the SEC rules, and it is apparently not being applied consistently currently.

"But mom everyone else is doing crime, why cant I do crime? Not doing crime puts me at a major disadvantage with respect to my criminal peers." - Brian Armstrong, TLDR

You really don't see anything wrong with, "It's illegal for you to do this but not your identical competitors with an identical product"?

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

#395

Post by nostrademons »

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.

Those risks apply to the traditional banking system as well. Someone could phish your login and password. Someone could steal your checks. Someone could open a policy with Progressive Insurance, provide a stolen account number, and pay their premiums out of your bank account while conducting progressively larger insurance fraud. Your bank could get hacked. Your bank could go bankrupt.

We dealt with an identity theft issue around the same time that I was conducting some crypto transactions with Coinbase, and the difference in security was stark. My bank hides 2-factor auth behind an obscure account setting. If someone steals your account number, they can start making direct withdrawals immediately just by entering it into an ACH form that doesn't do trial deposits. The bank relies on you keeping an eye on your statements to notice this, and they won't reimburse any fraudulent charges over $1000.

Meanwhile, Coinbase defaults to 2-factor auth. They send you an e-mail if you login from a machine whose IP & browser fingerprint doesn't match one you've logged in before. They do trial deposits for ACH linking. They send you an e-mail whenever someone initiates an ACH deposit or withdrawal from your account. There's a mandatory waiting period (1 week I think) before the funds are available. I suspect they would suck just as much as my bank if you did get hacked (I've heard horror stories), but the proactive security measures give me a lot more confidence than the mainstream financial industry.

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

#396

Post by Sohcahtoa82 »

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.

To completely eliminate fractional reserve lending would be economic suicide. Without fractional reserves, lending gets incredibly expensive. Interest rates would have to be sky high to quickly recuperate money distributed from a loan to be able to fund further loans.

Should we raise the minimum reserve? Maybe. But the 2008 crash was caused just as much by people taking out mortgages they couldn't possibly afford. We really need to teach financial literacy and planning in our high schools to prevent people from being taken advantage of from banks that just want to sell as many loans as possible under the assumption that if a borrower defaults, they'll still come out ahead after foreclosure since real estate is assumed to nearly always appreciate.

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

#397

Post by hajile »

phkahler wrote: post #367
hajile wrote: post #314

Earlier quoted context omitted.

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.

It is basically true.

I work hard and get paid $100 for what I did. I then deposit $100.

The bank loans $90 to person X.

Person X gives the money to person Y for some good or service.

Person Y deposits $90 and now there is $190 in the bank.

The bank loans $81 to person X+1.

Person X+1 gives the money to person Y+1 for some good or service.

Person Y+1 deposits $81 and now there is $271 in the bank.

The bank loans $72.90 to person X+1.

...

The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.

I get 0.05% interest off my hard work while the bank gets 5-25% interest off of $900 in imaginary money (future earnings, whatever).

If I printed $900 and loaned it out, I'd be arrested.

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

#398

Post by GHK1422 »

danaris wrote: post #276
vmception wrote: post #256

Earlier quoted context omitted.

Which should be a choice for all US residents to participate in, residents who can also go lose their money at casinos if they wanted, but are literally barred from participating in positive expected value financial systems. Just like Texas abortion laws, this is not enforced against the US resident, it is against the service providers, which has allowed this framework to persist for 70 years.

Because there is a power and information asymmetry at work, and humans are not perfect rational actors. The institutions that would want to operate these have the power to run massive advertising campaigns promoting them as the best place to earn money (with a bunch of quick disclaimers just like the various medical ads that people have gotten so used to now). The people who would be preyed upon by this are not those…

But you see how locking people out of risk locks them out of reward right? The interface to regulate should be on the educational front, not on the access front. Instead the regulatory framework we have leads to the accredited class being protected from competition and is a direct antecedent to the neo gilded age landscape we are in now. IMO the want for regulation that "protects" investors on the margin while hurting the majority by locking them out of risk is the wrong approach, and always has been.

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

#399

Post by morpheos137 »

phkahler wrote: post #367
hajile wrote: post #314

Earlier quoted context omitted.

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.

I think it is more people who are ignorant about how monetary economics works. Try living in an economy without fractional reserve banking. You'll find credit is very hard to come by and interest rates are high.
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