- J Markezic and M Bacina
A lot at stake with interest bearing staking products
Coinbase has issued a statement saying that it is currently being probed by the US Securities and Exchange Commission (SEC) over its staking programs that allow users to earn rewards for holding specific classes of cryptocurrencies.
In a letter to Coinbase shareholders earlier this week, Coinbase confirmed that the SEC sent a voluntary request for information in May 2022, including a request for particulars into its listing process. Coinbase has also confirmed that at this stage it is unaware if the inquiry will become a formal investigation. The exchange has also come under heavy scrutiny from the SEC for allegedly making unregistered securities available for trading.
According to a quarterly regulatory filing:
has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations and existing and intended future products...
Staking is a loosely defined process ranging from a process whereby users are able to generate yield on certain crypto holdings by delegating them to verify transactions and secure the blockchain network to centralised entities borrowing crypto from users and paying interest on it (such as offered by Celsius Networks). Coinbase's staking offering contributed towards 8.5% of net revenue in its second quarter, and fell 16% to US$68.4 million during that same quarter.
As with all regulators around the world, we are committed to productive discussion with the SEC about crypto assets and securities regulation...
Last year, Coinbase abandoned its plans to offer the ill fated Lend program which would have allowed eligible customers to earn interest on select assets, starting with four percent APY on USD Coin after an SEC 'Wells' notice.
With competition in the crypto exchange market fierce, this serves as a timely reminder for crypto exchange businesses to remain aware and vigilant of their regulatory obligations, especially where offering returns in a way which bear similarities to interest bearing financial products.