After clashing with the U.S. Securities and Exchange Commission (SEC) on its proposed Lend feature, Coinbase (NASDAQ: COIN) is now working on regulatory proposals for the digital currency industry. According to its CEO, the exchange is set to present the proposals by early October and believes that authorities in Washington are open to such submissions.
As the first digital currency exchange to list in the United States, Coinbase has presented itself as a beacon of compliance—an image that shattered when it realized following the Lend brouhaha that things can change very quickly when dealing with regulators. It now wants to ensure that the entire industry has policies it can adhere to and is willing to assist the U.S. federal regulators in this quest.
Early this week, the exchange announced it’s dropping its plan to launch Coinbase Lend after it received a Wells notice from the SEC, effectively notifying it that the regulator would sue it if it went ahead with its Lend plans. Paul Grewal, the exchange’s chief legal officer lamented that Coinbase was not aware of why the SEC was taking such actions and accused the regulator of not providing clarity to the industry.
Now, CEO and founder Brian Armstrong revealed in a recent event that the draft regulatory framework should be ready in a couple of weeks. Armstrong was speaking at the TechCrunch Disrupt 2021 event.
“Coinbase wants to be an advisor and a helpful advocate for how the U.S. can create that sensible regulation. In fact, there’s a proposal that we’re putting out at the end of this month, or maybe early next month, that is our proposed regulatory framework,” he told the attendees.
According to Armstrong, who prior to launching Coinbase worked at Airbnb, regulators in Washington have been crying out for such submissions to guide their policy development. These regulators want digital currencies to be regulated federally, he believes, as opposed to the current setup in which businesses have to acquire licenses from each state regulator.
Coinbase, for instance, has “50 different state regulators for money transmission licenses, 50 for lending licenses […] FINCEN, and SEC, and CFTC, and IRS and Treasury and OFAC,” Armstrong claimed.
And while he is optimistic that the proposals his team is working on will go a long way in forming the policies, he acknowledged that regulators will need many more stakeholders to contribute.
“We have a proposal that we actually want to put out there that could help maybe create at least one idea about how to move forward. But this is going to require input from a lot of people, and that willingness [on the part of lawmakers] to kind of engage with private industry and learn about what the opportunity is here,” he remarked.
The Facebook Standard
According to one expert, Coinbase is sticking to a script that big incumbent businesses in nascent industries apply. When these businesses pioneer regulations for their industries, they ensure that they are set to standards that only they can adhere to. This keeps the smaller businesses from being able to compete with these incumbents.
Byrne Hobart, a renowned tech writer defined it as the Facebook standard, stating, “Facebook wants to be regulated, as long as everyone is regulated based on a standard set by the worst things that happen on Facebook.”
Coinbase, however, isn’t alone in being on the receiving end of regulatory crackdowns for its proposed lending feature. BlockFi and Celsius, two of the largest digital currency lending firms, have been stamped out by a number of state regulators in the U.S. in recent months.
Elsewhere, Coinbase Global Inc. president Emilie Choi has called for an even playing field in financial regulations. Speaking at the Messari Mainnet Conference in New York, Choi urged the regulator to practice clarity and fairness when dealing with digital currency firms.
She remarked, “We do want to get to this place where there’s just common-sense rules and regulations.”
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