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"Coinbase had originally planned to launch its Lend product to customers later this year. The Lend product would allow customers to earn 4% APY on their USDC deposits sitting with Coinbase custody. The SEC was uncomfortable with Coinbase taking custody and lending out the underlying assets with partners to generate the 4% Yield. There was a public spat between CEO Armstrong and the SEC - where the SEC issued a Wells notice, basically telling Coinbase that if the product launched, the SEC would sue them. After some back and forth, Coinbase has officially dropped the Lend product for the near future.
Why does this matter?
The SEC led by Gary Gensler is focused on regulating the crypto market, that has gone relatively unchecked since inception. Earlier this year, we saw regulators begin reviewing business practices of Blockfi and Celsius, to name a few. The main sticking point is that a 3rd party company is taking assets on behalf of customers and creating a market to earn yield through partners. SEC’s concern - it’s a completely unregulated market where customer funds could be at risk without the proper checks and balances."
-Harsharn Singh, Investment Associate @ Ember Fund
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