Acknowledgement of Risk. By opting into Lend, you are acknowledging the following: Lend is not a checking account nor a bank savings account, and Coinbase is not a bank. By participating in Lend, you are making a loan of your eligible Digital Currency to Coinbase, Coinbase is your counterparty and you will have only a contract claim against Coinbase for the return of Loaned Digital Currency. As with any loan transaction, you could lose all your Loaned Digital Currency if we are unable to repay your loan. Coinbase does not provide you with collateral for the Loaned Digital Currency. You acknowledge that while you have the right to make a Return Request at any time, if Coinbase becomes insolvent or bankrupt or is placed in receivership your Loaned Digital Currency may be lost. Your Loaned Digital Currency is not protected by the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation or other insurance.
Coinbase may use Loaned Digital Currency in its sole discretion, including uses which generate returns for Coinbase in excess of the Lend APY, which Coinbase is entitled to as compensation for Lend. Any returns generated by the use of Loaned Digital Currency are not returned to you as part of Lend interest. Therefore, although the interest rate will be determined in accordance with Section 2, the interest rate is determined by Coinbase and Coinbase may have a conflict of interest with you in setting the Interest Rate.
OK. So Coinbase wants to borrow your money, invest it in something else, not tell you what that something else is, and hopefully pay you back. In the real world, they're selling you a bond or commercial paper. That's a security.[1]
Morrison and Forster lists these requirements for commercial paper that doesn't have to be registered as a security.
- Negotiable (No)
- Prime quality (No)
- Eligible for discount at Federal Reserve banks (No)
- Not ordinarily purchased by the general public (No)
- Used to facilitate “current transactions” (No)
- Maturity of nine months or less with no automatic roll-over. (No)
Nope, doesn't qualify.
Coinbase is trying to pretend to be a bank without qualifying as a bank. They have to know this; they're a public company and have now filed SEC filings for two whole quarters.
[1] https://media2.mofo.com/documents/151203commercialpaperprogr...