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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

#431

Post by olalonde »

dragonwriter wrote: post #428
olalonde wrote: post #426

Earlier quoted context omitted.

I think you misunderstood my question. Let's say the SEC tells you "don't do X or we will sue you" but you believe that the SEC's request is invalid for whatever reason. Is there a way to get a judge to decide on whether you are right, before you do X and get sued?

> Let's say the SEC tells you "don't do X or we will sue you" but you believe that the SEC's request is invalid for whatever reason. Is there a way to get a judge to decide on whether you are right, before you do X and get sued? I believe you can file an action seeking a declaratory judgement, but as I understand there is generally little reason: a Wells Notice is not, as I understand it, a “we might sue you if you d…

Ok thanks, that's more clear.

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

#432

Post by wallacoloo »

Denvercoder9 wrote: post #403
wallacoloo wrote: post #391

Earlier quoted context omitted.

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 lo…

Everything you mentioned (servers failing, hacks, etc) is operational risk, and that isn't what I'm talking about here. The point here is financial risk: things like a counterparty defaulting on their loan, the intermediary (a bank, Coinbase or their insurer) going insolvent when that happens too often, and you losing your "guaranteed" money. The US government is generally regarded as the worlds most reliable debtor,…

The consumer primarily cares "what's my expected return, and what's the variance". Operational risk surely affects that, so what's the justification in ignoring it?

> The US government is generally regarded as the worlds most reliable debtor, and thus US government-backed securities (such as FDIC-guaranteed bank deposits), are seen as the lowest attainable risk and called "risk-free". Anyone offering higher interest rates must do something that incurs more risk to get the returns necessary to be able to pay that higher interest rate.

Look at your wording here: "generally regarded". This is the point I'm after: risk assessment is a thing done by individual actors. Yes, they'll outsource much of this to 3rd parties, but at the end of the day, it's a subjective thing. People with political ties with the US may be more likely to view US banking as a low-risk activity; the disenfranchised or the people with weaker US ties might view it as higher risk. It can be simultaneously true that Alice's risk-adjusted return through Lend is more than her risk-adjusted return through traditional banking, while Bob's risk-adjusted return through Lend is less than through traditional banking. That's not necessarily a contradiction.

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

#433

Post by kobasa »

dataflow wrote: post #33
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.

"We think others should be sued too" is quite a different argument from "we don't know why we're being sued". In fact it strongly suggests the opposite.

They don't know why they're being sued because everyone else is doing it and not getting sued. Makes sense from that point of view. Coinbase technically should only be sued if the others doing were sued too, but they're not... Compound this with the fact that no explanation was given to them why they're being sued - when it is very much necessary in light of their competitors not getting sued and you can start understanding their confusion.

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

#434

Post by kobasa »

arcticbull wrote: post #405
SilasX wrote: post #394

Earlier quoted context omitted.

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"?

The SEC didn't say that everyone else could do it. They said the action itself is illegal and they're beginning their enforcement actions at Coinbase. Nobody is allowed to do it, and a judgement in their favor here will allow them to expeditiously stop everyone else with the explicit precedent they form. That's almost certainly why they're pushing ahead. It feels like your reaction is akin to a group of 5 cars speedi…

"They said the action itself is illegal and they're beginning their enforcement actions at Coinbase" - they said no such thing, stop guessing out of your backside to try to strengthen phantom arguments.

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

#435

Post by bastawhiz »

nostrademons wrote: post #429
bastawhiz wrote: post #416

Earlier quoted context omitted.

Account security best practices are orthogonal to how your assets are handled behind the scenes. The SEC isn't regulating securities because someone might log into your account, they regulate them because someone at Coinbase could be deceiving investors or hiding risk. Money doesn't appear magically from nowhere. If someone is offering you return for holding your cash, it's not just sitting there. The risk is implici…

But with regards to this subthread specifically - the risks that the OP points out are account security best practices, and common to both Coinbase and traditional banks. If you're going to point them out as reasons that your capital is at risk, you also have to point out that your capital is at risk with traditional financial institutions.

That's moot. It's totally reasonable for the SEC to not regulate account security best practices and still regulate the company implementing those practices making off with your cash. A Ponzi scheme whose website has mandatory 2FA is not somehow better. The SEC was never designed to protect against all kinds of risks.

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

#436

Post by kerng »

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…

Bitcoin isn't a security, so why should a Bitcoin lending platform be one? Assuming that rewards are in Bitcoin and not dollars.

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

#437

Post by [deleted] »

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.

[deleted]

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

#438

Post by kccqzy »

kerng wrote: post #436
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…

Bitcoin isn't a security, so why should a Bitcoin lending platform be one? Assuming that rewards are in Bitcoin and not dollars.

This is absurd. You can make a security out of something that's not a security.

The US Dollar isn't a security (it's a currency), but many USD lending platforms in fact offer securities. Bonds can be denominated in USD and they are securities.

My house isn't a security, but when my bank decides to package the house-backed mortgage and sell it as MBS, it's a security.

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

#439

Post by [deleted] »

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.

[deleted]

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

#440

Post by Wowfunhappy »

throwaway98797 wrote: post #379
Wowfunhappy wrote: post #255

Earlier quoted context omitted.

FDIC was put in place after The Great Depression, in order to prevent another Great Depression. There is no opt out because when large numbers of people make risky investments without planning for the consequences, it affects the entire economy.

Individual freedom vs. community safety. Where to draw the line? Who should draw it and by what mechanism?

> Where to draw the line? Who should draw it and by what mechanism?

The democratically elected government seems like a good place to start!

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