Coinbase has discontinued its Lend scheme, by which it planned to award users interest on the crypto-coins that they keep on its platform that they do not wish to trade at any particular moment. It has done so in a quiet update to a months-old blog post.
The update is entitled "Update as of 5pm ET, Friday, September 17th: we are not launching the USDC APY program announced below".
The communiqué continues: "As we continue our work to seek regulatory clarity for the crypto-industry as a whole, we’ve made the difficult decision not to launch the USDC APY program announced below. We have also discontinued the waitlist for this program as we turn our work to what comes next. We had hundreds of thousands of customers from across the country sign up and we want to thank you all for your interest."
This climbdown stands in stark contrast to the defiant blog post of Paul Grewal, chief legal officer at Coinbase on September 8, which revealed the company's bewilderment at having received a so-called Wells Notice from the U.S. Securities and Exchange Commission (SEC).
The scheme would have awarded each user 4 percent average yield, which is more than eightfold the national average for high-yield savings accounts. Every user was to have been able to opt out at any time. Some Coinbase customers were already on a waiting list to join the scheme, such was its popularity. Coinbase referred to these people as "pre-enrollers."
VIXIO contacted the Coinbase press office early on Tuesday afternoon to check the veracity of its announcement, but received no reply before publication.
The firm's advertisement for Lend was still on its website as of Tuesday afternoon, but has since been removed.
Investopedia states that the U.S. Supreme Court case of Securities and Exchange Commission v W.J. Howey Co., 328 U.S. 293 (1946) determines whether a transaction qualifies as an "investment contract," and therefore whether it is a security and subject to regulation under the Securities Act 1933 and the Securities Exchange Act 1934.
Under the so-called Howey Test, an investment contract exists if there is an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." The SEC appears to believe that a return on holdings of 4 percent per annum qualifies for this.