Coinbase Urges SEC to Clarify Core Pledge Services Are Not Securities

03/21/2023 05:58 • AI Insights • 106 views

On March 21st, Paul Grewal, Chief Legal Officer of Coinbase, said on Twitter that today, Coinbase submitted a comment letter to our July 2022 SEC rulemaking petition. We explained why core pledge services are not securities issuance and asked the SEC to clarify the fact that core pledge services are not securities.

Coinbase CLO once again called on the SEC to clarify that pledge services are not securities, and to contact the public before law enforcement

Introduction

On March 21st, Coinbase’s Chief Legal Officer, Paul Grewal, took to Twitter to announce that Coinbase had submitted a comment letter to the Securities and Exchange Commission (SEC). The letter sought to clarify that core pledge services are not securities issuance and urged the SEC to take the necessary steps to clarify this fact.

What are Core Pledge Services?

Core pledge services refer to products or services offered by companies that allow customers to pledge assets like cryptocurrencies as collateral in exchange for loans. These services are an important component of the rapidly expanding decentralized finance (DeFi) ecosystem, which seeks to offer financial services that are accessible, secure, and resistant to censorship or interference from centralized authorities.

Coinbase’s Position

In the comment letter submitted to the SEC, Coinbase argued that core pledge services should not be considered securities because they do not meet the definition of an investment contract. An investment contract is a legal term used to describe an arrangement whereby an individual invests money in a common enterprise and is promised profits that will be generated by the efforts of others.
According to Coinbase, core pledge services do not meet these criteria. Customers enter into these agreements voluntarily and are not promised profits or guaranteed returns. Moreover, core pledge services are not tied to any underlying security or investment, but rather to the value of the assets pledged as collateral. As such, they should not be considered securities and should be subject to a different regulatory framework.

Implications of SEC Classification

If the SEC were to classify core pledge services as securities, it would have a significant impact on the DeFi industry. It would require these products and services to comply with securities regulations, which could place a significant burden on service providers and potentially limit the availability of these services to customers.
Furthermore, it would create uncertainty for investors and other stakeholders in the DeFi ecosystem, which could lead to decreased investment and hinder innovation in this rapidly evolving area of the blockchain industry.

Conclusion

In its comment letter to the SEC, Coinbase has made it clear that it believes core pledge services should not be classified as securities. By doing so, Coinbase hopes to promote a regulatory environment that fosters innovation and growth in the DeFi sector while ensuring that customers are protected from fraudulent or unethical practices.

FAQs

Q1. Why are core pledge services important?

A: Core pledge services are an important component of the DeFi ecosystem, which seeks to offer financial services that are accessible, secure, and resistant to censorship or interference from centralized authorities.

Q2. How would SEC classification impact the DeFi industry?

A: If classified as securities, core pledge services would be subject to securities regulations, which could place a significant burden on service providers and potentially limit the availability of these services to customers.

Q3. What is DeFi?

A: DeFi stands for “decentralized finance” and refers to financial services that are built on decentralized blockchain networks, often using smart contracts to automate processes and ensure transparency.

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