# SEC ## [[Coinbase]] "Lending is a Security" Drama ### [[Coinbase]] official response https://blog.coinbase.com/the-sec-has-told-us-it-wants-to-sue-us-over-lend-we-have-no-idea-why-a3a1b6507009?gi=f0d24d526f6e ### Requiring PII the SEC wants Coinbase to turn over the name and contact information of anyone who said they are interested in their lend program. Why would that be relevant to their investigation into whether the program is compliant? ![[20210908_113135.jpg]] https://twitter.com/NeerajKA/status/1435574854040924164?s=19 - [Tweet](https://twitter.com/i/status/1435506168718237706) by [@collins_belton](https://twitter.com/collins_belton) on [[September 8th, 2021]]: - Putting aside my thoughts on the SEC's behavior and hypocrisy, I think the below sentence buried in [@coinbase](https://twitter.com/coinbase)'s posts deserves special attention separate from the securities law chicanery. This should leave you uncomfortable. [pic.twitter.com/UssafSVvaE](https://twitter.com/collins_belton/status/1435506168718237706/photo/1) [twitter.com/collins_belton…](https://twitter.com/collins_belton/status/1435502909647581184) - Did you catch what happened there? - This is not the SEC asking for the info of people who have engaged in some illegal activity. This is [@SECGov](https://twitter.com/SECGov) just asking for the info of people *merely interested* in a product that *may* be offered in the future. - In what world would collecting their PII (and presumably things like their wallet information) make sense if not to just generally track their behavior. What does [@SECGov](https://twitter.com/SECGov) plan to do with this? This seems like something worthy of a FOIA request. - I hate sounding like the paranoid tin foiler, but this is part of the reason why I also have increasingly shied away from sharing things with CEX's when I can. The level of detail a crypto wallet exposes on your personal life is so much greater than many other tradfi things. - [@coinbase](https://twitter.com/coinbase) is just the first to share this request, but I can assure you the SEC has asked and will likely continue to ask others this type of stuff despite the fact that they have no reason to believe these people have engaged in anything untoward. - [@gulovsen](https://twitter.com/gulovsen) [@lisalefever_](https://twitter.com/lisalefever_) [@coinbase](https://twitter.com/coinbase) I haven’t really used CEXs going on almost 3 years after seeing the writing on the wall with Binance, so I’m not the greatest defender of CEXs, but their rights are inextricably tied to ours, and I think it’s impt at times like these that we have some solidarity against overreach - [@Waresj1](https://twitter.com/Waresj1) [@gulovsen](https://twitter.com/gulovsen) [@lisalefever_](https://twitter.com/lisalefever_) [@coinbase](https://twitter.com/coinbase) Sorry, re-reading this comes off like snark/indignation but I genuinely was asking if that’s what you meant because it just took me by extreme surprise. ### Unclear guidance - [Tweet](https://twitter.com/i/status/1435502909647581184) by [@collins_belton](https://twitter.com/collins_belton) on [[September 8th, 2021]]: - While I can't say I'm surprised, I'm happy [@coinbase](https://twitter.com/coinbase) is shedding light on how [@SECGov](https://twitter.com/SECGov)'s approach is actively disincentivizing proactive engagement and compliance. - The hypocrisy of asking for engagement and subsequently stonewalling willing participants should be made public. [twitter.com/coinbase/statu…](https://twitter.com/coinbase/status/1435448395091615747) - The SEC has (and continues to) engaged in campaigns of "asking" projects for "voluntary" info disclosures, particularly [[DeFi]] projects under the guise of "wanting to understand more," only to subsequently hint that there may be illegal activity they refuse to identify. - This approach allows them to exert pressure and has substantial chilling effects while saving them the resources they would need to spend to prove their case in court while concurrently depriving us of the benefit of case law and judicial checks on administrative overreach. - Custodial lending products are admittedly a challenging regulatory maze that can touch on securities, commodities, lending, consumer protection and other areas of the law. They're some of the thorniest regulatory products other than security-based swaps (e.g. stock tokens) IMO. - That said, there are theoretically paths forward to offering products that don't fall into all of these categories. I can't say whether [@coinbase](https://twitter.com/coinbase) checked those boxes, but in large part this owes to the fact that [@SECGov](https://twitter.com/SECGov) refuses to give clear guidance on their view to the industry - As an aside, you might wonder my thoughts on the merits of the arguments CB hints at. I won't spend much time here because I think it's been discussed publicly before and isn't my pt, but in short, I don't think Reves arguments that crypto lending involves notes apply here. - On Howey arguments under an investment contract definition, if I'm being generous, I can squint and see SEC's attempt to shoehorn custodial lending into Howey's def. of an investment contract. But it's a pained argument and their intransigence suggests that they know it's flimsy. - I do find it interesting that [@coinbase](https://twitter.com/coinbase) is going to the mat with the SEC on this though. I really didn't think Lend was viewed as so instrumental internally. - If I had to guess, real concern they have is they believe the SEC will extend this view to staking/liq. staking svcs. - That stance wouldn't surprise me either and is why products like [@LidoFinance](https://twitter.com/LidoFinance) are right to focus on disaggregating control and imbuing their token holders with control of their primitives in the long term. - As I mentioned the other day, September is [@SECGov](https://twitter.com/SECGov)'s fiscal year end, and it's likely we'll see at least a few other things either directly from the SEC/companies or leaked in the media. People in the market should probably keep that in mind. - [twitter.com/collins_belton…](https://twitter.com/collins_belton/status/1433756125309067286?s=20) - [@adamdavidlong](https://twitter.com/adamdavidlong) It will definitely negatively impact credible businesses in the state but won't curtail bona fide DeFi offerings. That said, the fact that they have done this in the past doesn't make it justifiable and I assume advocates of those spaces back then spoke up. Commentary by John Collins - [Tweet](https://twitter.com/i/status/1435577720222715905) by [@JohnCollins](https://twitter.com/JohnCollins) on [[September 8th, 2021]]: - I’m pretty conservative when it comes to a lot of crypto policy and generally don’t offer my opinions publicly but the Coinbase Lend thing is total bullshit. - Total lack of transparency. No incentive to do the right thing or, frankly, even operate in the US at this point. And this is just the latest example. - All of this regulation by speeches and enforcement is trash and it’s gone on too long. Unless the political realities (totally outside of crypto) dramatically change - Congress isn’t going to be able to do much. - I think [@jerrybrito](https://twitter.com/jerrybrito) is right on his take: Launch it, get sued, and go work it out in the courts. - That’s very easy for me to say but that’s what Twitter is for, I guess. ### [[Preston Byrne]]: Yield products are securities because they are unsecured bonds - [Tweet](https://twitter.com/i/status/1435452184607576066) by [@prestonjbyrne](https://twitter.com/prestonjbyrne) on [[September 8th, 2021]]: - “Yield” products are securities. They differ in no material respect from an unsecured bond. They just don’t use the name. - Other countries, like England, have debt crowdfunding rules. US cos should check that out and we should emulate those rules here. [twitter.com/brian_armstron…](https://twitter.com/brian_armstrong/status/1435439543692365828) - If you happen to run a US company and have a nearly fully baked yield offering and you’re not immediately calling up English counsel to talk about UK debt crowdfunding rules, now would be the time - No, because precedents and the FDIC. The law favors banks over nonbanks in this regard. [twitter.com/erikvoorhees/s…](https://twitter.com/erikvoorhees/status/1435477957745672197) - I will add, apart from my debt crowdfunding comment, none of the above is a normative claim about what ought to be. I am simply describing things as they are. - We ought to have debt crowdfunding rules. - Here is an English person agreeing with me. He also runs a Fintech consultancy in London, if you give him tea and a biscuit you may be able to retain his services [twitter.com/sytaylor/statu…](https://twitter.com/sytaylor/status/1435582215669354498) - And here is an op-ed I wrote a few weeks ago about BlockFi on exactly the same issue CB is discussing today. - [CoinDesk: Bitcoin, Ethereum, Crypto News and Price Data](https://www.coindesk.com/markets/2021/07/22/blockfi-is-in-regulators-crosshairs-defi-is-next/)