In June 2021, the largest U.S.-based crypto exchange, Coinbase, announced plans to allow its customers to earn 4% interest on deposits of certain cryptoassets through a new “Coinbase Lend” program. Despite a positive reaction from its customers, on September 7, 2021, Coinbase announced it had received a notice from the Securities and Exchange Commission (SEC) to the effect that the Commission had preliminarily concluded that the proposed Lend program was a security and that Coinbase would be in violation of the federal securities laws if it proceeded. The threat of enforcement caused Coinbase to terminate the program. Shortly thereafter, in the wake of several state enforcement actions, the SEC also announced a settlement with BlockFi that terminated its crypto lending program in the U.S. Neither of these actions conclusively explained the test that the SEC was using to determine when a crypto lending program involves the issuance of a security. This article considers the appropriate test for evaluating crypto lending programs and concludes that in many cases, the appropriate test should look at whether there are “notes” that fit within the definition of security. This article suggests that the SEC is applying the federal securities laws too broadly without offering sufficient explanation for its interpretations and that the Coinbase Lend program in particular should not have been shuttered. The article concludes that continuing regulatory uncertainty as to the scope of the federal securities laws is depriving U.S. citizens of potentially valuable opportunities.



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