Coinbase Crypto-Staking Programs, Crypto Yield Under SEC Probe

Coinbase, the publicly traded distributed company that operates a cryptocurrency exchange platform, is currently under investigation by the U.S. Securities and Exchange Commission (SEC) over its token listing processes, yield-generating products and staking programs, the company's quarterly report shows.

"The company has received investigative subpoenas and requests from the [U.S. Securities and Exchange Commission] for documents and information about certain customer programs, operations, and existing and intended future products, including the Company's processes for listing assets, the classification of certain listed assets, its staking programs, and its stablecoin and yield-generating products," the Nasdaq-listed company noted in the 10-Q form.

In its shareholders' letter posted Tuesday, Coinbase disclosed that it received a voluntary request for information from the SEC in May, but it was unaware if the said inquiry would turn into a formal investigation. In the letter, the company downplayed the inquiry, noting that it "regularly gets formal and informal questions from regulators about our views on the development of the crypto economy, our products, and our operations."

This latest development highlights the surmounting pressure Coinbase faces as an entity subject to the rules, policies and regulations of the U.S. SEC. Last month, Bloomberg, citing three people familiar with the matter, reported that the SEC is probing whether the company improperly allowed Americans to trade digital assets that should have been registered as securities.

Following Bloomberg's report, Coinbase chief legal officer Paul Grewal said, "I'm happy to say it again and again: we are confident that our rigorous diligence process—a process the SEC has already reviewed—keeps securities off our platform, and we look forward to engaging with the SEC on the matter."

The publicly traded company known to many as a crypto exchange platform reported a whopping $1.09 billion net loss in Q2 2022 alone. In the latest quarterly report, the company disclosed that 8.5% of the revenue for the second quarter represented its earned commission from crypto staking.

A few days before the quarterly report came out, Coinbase chastised the SEC for injecting itself into an ongoing case of insider trading prosecuted under wire fraud. "The DOJ reviewed the same facts and chose not to file securities fraud charges against those involved. As CFTC Commissioner Caroline Pham stated, this is a 'striking example of regulation by enforcement by the SEC,'" Coinbase legal counsel said in a post titled, "Coinbase does not list securities. End of Story."