Coinbase faces SEC lawsuit over ‘mystery’ issues with crypto lending

Cryptocurrency exchange says Lend feature will be put on hold

Coinbase became a publicly traded company in April 2021 (AFP via Getty Images)

Leading crypto exchange Coinbase is facing legal action from the US Securities and Exchange Commission (SEC) over its plans to launch a lending programme on its platform.

The SEC sent Coinbase a Wells notice, which serves as an official way for the regulator to let a company know that it intends to sue.

In response, Coinbase agreed to temporarily suspend plans for its Lend product, which would have allowed customers to earn interest on their holdings by lending them.

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In a blog post titled, ‘The SEC has told us it wants to sue us over Lend. We don’t know why’, Coinbase’s chief legal officer Paul Grewal expressed surprise at the SEC’s action.

“Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem,” Mr Grewal wrote.

“Rather they have now told us that if we launch Lend they intend to sue. We asked if the SEC would share their reasoning with us... they refused.

“Mystery and ambiguity only serve to unnecessarily stifle new products that customers want and that Coinbase and others can safely deliver.”

Mr Grewal said Lend would be put on hold until “at least October” while it attempts to address the perceived issues. The SEC did not respond to a request for comment.

Coinbase became the first cryptocurrency exchange to become a publicly traded company when it made its initial public offering in April.

Market analyst Daniel Ives, from the brokerage Wedbush Securities, described it as a “watershed event for the crypto industry” at the time.

“Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto for the coming years,” he said.

As part of its SEC filing to go public in 2020, Coinbase listed 43 million verified users, 7,000 institutions and 115,000 ecosystem partners. The number of users has since grown to 68 million.