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Comment by gnee | Hacker News Reader

When you put your money into a saving account, you're lending the bank your money with an 0.04% interest rate. Is that a security?

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> lending the bank your money with an 0.04% interest rate. Is that a security?

No. Banks are regulated separately and more strenuously than securities firms, much less issuers. If Coinbase wants to offer Lend as an FDIC-insured deposit account, I’m sure the SEC would be fine with it. But Coinbase can’t do that because it doesn’t follow the rules banks must follow.

And FDIC might not want them.

Might is probably an understatement.

I agree. It is very unlikely that FDIC would allow it. As I understand, all deposit products, including certificates of deposit, are guaranteed up to a certain amount with FDIC regulated banking institutions. The same is also true of securities brokers, but under a different regulator (SEC?) and different programme.

But is Lend a security? As far as I can tell, there's no contract for capital flows that you can trade with others. Lend isn't fungible, the USDC is.

As I understand it, there doesn’t need to be a liquid market for something in order for it to be a security; just an investment of capital with the expectation of return through the efforts of a third party (the Howey test)

Startup stock is a security, despite trade restrictions (e.g. right of first refusal). Same with restricted (i.e. unvested) stock units.

Everyone in the cryptocurrency industry is familiar with the Howey test.

> is Lend a security?

According to Coinbase, the SEC said "they consider Lend to involve a security." Not that it is a security. The second question is (a) more ambiguous and (b) a red herring from Coinbase.

If Coinbase is taking deposits from customers to engage in securities trading, it's acting as a bank or broker-dealer. It is registered and regulated as neither. Note that Kraken and Gemini have state banking charters. Coinbase is drawing a false equivalence. The entire enterprise stinks of bad faith, possibly fraud.

It is. But since it’s issued by a bank it’s largely exempted from the Securities Act[1] along with many other types of securities. For example, a lot of life insurance policies are technically securities, too.

[1]https://www.law.cornell.edu/uscode/text/15/77c

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