The United States Securities and Substitution Commission has reportedly threatened to sue Coinbase over a crypto yield program information technology deems as a security.

Coinbase CEO Brian Armstrong tweeted on Wed that there has been some "really sketchy behavior coming out of the SEC recently" before launching into a 21 post thread detailing the SEC's dealings with the house.

Armstrong explained that the crypto exchange approached the SEC earlier this year to cursory the enforcement body over the upwards-and-coming Coinbase Lend plan that intends to offer four% annual yield returns on deposits of the USD Coin (USDC) stablecoin.

Co-ordinate to the Coinbase CEO, the SEC responded by telling the firm that the lending program is a security without whatsoever explanation and threatened to sue if the service was launched:

"They refuse to tell us why they recall it's a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and so tell us they will be suing us if nosotros proceed to launch, with zero caption as to why."

Armstrong pointed out that there are other crypto firms on the market that currently provide similar lending services to their customers and called for the SEC to provide regulatory clarity on the topic. The SEC's actions, if Armstrong has reported them accurately, appear to be bad news for competitors BlockFi and Celsius, which already offer crypto yield products. BlockFi is facing investigations in a number of states over its high-interest products.

In a blog mail service published on Wednesday, Paul Grewal, chief legal officer of Coinbase, expressed his dismay at the SEC'southward actions as he questioned the assertion the lending feature tin can be deemed equally an "investment contract or a notation."

"Customers won't be 'investing' in the programme, simply rather lending the USDC they hold on Coinbase's platform in connection with their existing human relationship. And although Lend customers will earn involvement from their participation in the program, we have an obligation to pay this interest regardless of Coinbase's broader business activities," he said.

Grewal went on to explicate that the only clarification the firm has been provided is that the lending program is currently existence assessed nether the Howey Examination:

"They have only told u.s.a. that they are assessing our Lend product through the prism of decades-former Supreme Court cases called Howey and Reves. The SEC won't share the assessment itself, only the fact that they have done it."

SEC dominate Gary Gensler has regularly urged crypto firms to piece of work with the SEC and then that they tin can operate under public frameworks and ensure their survival. Grewal said the SEC's actions appear to contradict Gensler's statements:

"The SEC has repeatedly asked our manufacture to 'talk to us, come in.' We did that here. But today all we know is that nosotros can either proceed Lend off the market place indefinitely without knowing why or nosotros tin be sued."

"A healthy regulatory human relationship should never leave the industry in that kind of bind without caption. Dialogue is at the center of good regulation," he said.

Related: SEC reportedly investigates decentralized exchange Uniswap

Grewal stated that the house volition be belongings off the launch of the lending plan until at least October, while it waits for farther feedback from the SEC.