SEC Issues Wells Notice to Coinbase
The SEC issued a Wells notice to Coinbase, centered around the crypto exchange's staking service and asset listings, according to a tweet from Coinbase CEO Brian Armstrong.
❗ Why It Matters
Coinbase is the largest crypto exchange in the U.S., and it's troubling for the space that a company that describes itself as "the most trusted crypto exchange" is in hot water under the current regulatory framework. Staking in particular is a complicated concept; in fact, Horizon Labs has a geoblocker on its $APE staking platform in the U.S. region.
So while there are clear crimes in the space that make sense to pursue, in this case the SEC actually approved the initial language around staking in Coinbase's IPO registration statement. Thus, the regulatory body's renewed stance against staking is a difficult one to digest.
🔍 The Deets
- Coinbase received a Wells notice from the SEC "regarding an unspecified portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation."
- CEO Brian Armstrong noted that a Wells notice typically precedes an enforcement action. A Wells notice shows the SEC's intent to recommend enforcement action against Coinbase, but it doesn't always result in charges or indicate that the recipient has violated any law.
- Coinbase made the assurance that it will continue to operate as usual, as today's news does not require any changes to the platform's current products or services.
Armstrong stated that the SEC reviewed Coinbase's business two years ago before the company went public and that the S-1 registration filing included 57 references to staking. He also added that Coinbase has rejected more than 90% of the assets that have applied to be listed on the platform.
"We met with the SEC more than 30 times over nine months, but we were doing all of the talking. In December 2022, we asked the SEC again for some feedback on our proposals. The SEC staff agreed to provide feedback in January 2023. In January, the day before our scheduled meeting, the SEC canceled on us and told us they would be shifting back to an enforcement investigation. We now understand that there is disagreement within the Commission itself on how to proceed with a registration path. This was just two months ago," said Paul Grewal, Chief Legal Officer of Coinbase.
🎤 Founder Feedback
While we understand that this is all part of the journey to reforming our financial system, we are right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court.Brian Armstrong
📊 By the Numbers
At the time of writing, Coinbase stock is down 8 percent on the day. It's down an additional 13 percent in after hours trading, according to Google Finance.
Source: Google Finance
🖼️ The Big Picture
There is a need for consistent and standardized crypto regulation in the U.S., and the SEC's ongoing gripes with Coinbase show that the crypto community must work to bridge that disconnect. It's a process that will take years and significant effort to mediate.
The words of Coinbase's Chief Legal Officer Paul Grewal, "Tell us the rules and we will follow them," will echo until the government and regulatory entities in the U.S. are willing to listen and collaborate, not just dictate.
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