Popular U.S.-based crypto exchange Coinbase may soon find itself in hot water with federal regulators.
The company’s CEO, Brian Armstrong, announced on Twitter Wednesday (March 22) that the exchange has received a Wells notice from the U.S. Securities and Exchange Commission (SEC) tied to Coinbase’s listing of potential unregistered securities across its suite of digital asset products and services.
“Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a statement.
Wells notices are not formal charges or lawsuits, but can often lead to them.
Most recently, at least for the digital asset sector, Paxos, a New York-regulated blockchain infrastructure and financial services platform, was issued one.
Paxos sunset its Binance-branded stablecoin product in response to the SEC notice.
Just as the Paxos Wells notice led to the retirement of its BUSD stablecoin, the SEC pressure on Coinbase has reportedly already killed the company’s staking reward product for at least one crypto token, Algorand.
“I woke up this morning to find Coinbase killed rewards … they are evaluating their services in light of recent regulatory scrutiny, and, for that reason, they will no longer support Algo rewards for Retail customers,” tweeted the Algorand CEO.
Coinbase users can still earn staking rewards from the Ethereum, Cosmos, Tezos, Cardano and Solana blockchain, per the Coinbase site.
During the company’s most recent earnings call last month (Feb. 21), Armstrong reiterated to investors his firm belief that the exchange’s business did not violate any securities laws, repeatedly emphasizing that neither its staking products nor USDC stablecoin were securities.
“Policy is my top priority for this year,” the CEO told investors.
Coinbase stock is trading down around 12% on the news.
“Two years ago the SEC reviewed our business in detail and approved Coinbase to go public. Our S1 clearly explained our asset listing process and included 57 references to staking. Coinbase runs a rigorous asset review process and has rejected more than 90% of assets that have applied to be listed on the platform,” tweeted Armstrong, linking to a blog post with the title, “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.”
As reported earlier by PYMNTS, Coinbase is looking into building a new crypto marketplace outside the U.S., as frustration grows on both sides between the crypto industry and the government.
“We are very confident in the way we run our business — the same business we presented to the SEC in order for us to become a public company in 2021,” the company stated.
As reported by PYMNTS, the recent months have not been kind to crypto.
The events that come next following the Coinbase Wells notice will be watched closely by the crypto community, as they may lead to more regulatory clarity around just which, if not all, of crypto’s services fall under and are subject to U.S. securities laws.