The U.S. Securities and Exchange Commission warned Coinbase to beware of lawsuits that could deter the entire cryptocurrency market

Cryptocurrency trading platform Coinbase Global Inc. disclosed in a blog post that the U.S. Securities and Exchange Commission (SEC) threatened to sue the company if it allowed customers to earn interest on some digital tokens.
This warning also has a deterrent effect on other companies that have issued similar products or are eager to try. It is also the clearest signal released by the new head of the SEC since he took office, that the regulator will play a big role in cracking down on products that feel risky - even before the product is launched. As soon as the news came out, Coinbase fell 3.2% to $258.20 in New York.
When Gary Gensler took charge of the SEC in April this year, many cryptocurrency enthusiasts were delighted. They felt that the former Goldman Sachs partner understood finance and had taught digital assets at MIT. Compared with many Washington officials who knew little about the crypto market, Gensler's background and resume were completely different.
But the good mood soon evaporated. Gensler has been clear about cleaning up the cryptocurrency industry in both his speeches and congressional testimony. In July, he called the industry "the wild west of finance" that "desperately needs rules of the road." Gensler also said the SEC will strengthen measures to hold companies accountable if the cryptocurrency products they offer are securities, including decentralized finance, or DeFi platforms.
At issue is Coinbase's Lend product, which, while not yet available, promises investors 4% annually to lend USDC virtual tokens. USDC is a stablecoin offered by Coinbase and several other companies that has gained popularity in the cryptocurrency market, allowing traders to easily exchange digital assets for cash or vice versa.
Coinbase’s battle with the SEC is well known. The company’s chief legal officer, Paul Grewal, said in a blog post that the SEC determined that Lend involved “a security, but did not say who or how they reached that conclusion.” Grewal added that the SEC informed Coinbase that “if we launched Lend, they intended to sue,” so Coinbase shelved the product until at least October.
“Waiting for the rabbit”
Privately, former SEC officials expressed shock at the agency’s stance and said the agency typically announces some kind of sanctions when these companies start selling investment products. This shows that the SEC has found a powerful response to cutting-edge cryptocurrency products that it worries will pose risks to consumers.
“This is the first time in a long time that the SEC has been this tough,” said James Cox, a professor at Duke University School of Law.

SEC officials declined to comment.
Coinbase has won the support of at least one longtime SEC adversary: ​​Mark Cuban. In a series of tweets, the billionaire entrepreneur urged Coinbase to fight back and prevent the SEC from winning a legal ruling that would give the agency more power over tokens and DeFi. Cuban has had a feud with the SEC since 2013, when the SEC accused him of insider trading.
One group, however, will be pleased with the SEC’s increased scrutiny of Coinbase: Democrats in Congress. Massachusetts Democrat Elizabeth Warren has repeatedly urged regulators to take a greater oversight role in the cryptocurrency market.