Crypto exchange Coinbase is preparing to pitch a proposed regulatory framework to federal officials.
The exchange plans to publicly roll out this proposal in the coming days, according to sources familiar with the regulatory discussions. Details of the proposal were not available at press time, but among other matters the company intends to argue what should and should not be defined as a security within the U.S.
When reached by CoinDesk, a Coinbase spokesperson declined to comment.
The news comes after Coinbase announced it was ceasing plans to offer a crypto lending product, which the Securities and Exchange Commission (SEC) said would violate securities laws.
Coinbase Chief Legal Officer Paul Grewal and CEO Brian Armstrong revealed that the SEC had sent a Wells Notice to the exchange earlier this month, which said the regulator would sue Coinbase should its “Lend” product launch.
Read more: Coinbase Drops Planned ‘Lend’ Program After SEC Warning
The SEC cited two Supreme Court Precedents – the Howey and Reves cases – in arguing that Lend appeared to violate securities laws.
While Coinbase did not publish the Wells Notice, legal experts told CoinDesk that the agency might be comparing Lend to stocks or certificates of interest, which are securities under the SEC’s purview.
Setting precedent
Coinbase has a storied history trying to create frameworks and tools to standardize how exchanges approach crypto listings and products, at least within the U.S.
The exchange was a founding member of the Crypto Rating Council, a 2019 effort that sought to create a common understanding of how closely any given cryptocurrency resembled a security.
The group rated a cryptocurrency from between 1 and 5, with a 1 referring to something that is definitely not a security (such as bitcoin), and a 5 referring to something that did appear to be a security (the CRC has not announced any cryptocurrencies that fit that description).
The CRC published its approach and a scorecard that projects could use for self-evaluation last year.
Coinbase also published an open source technical framework last year for crypto developers to utilize. Projects that adopted the framework could ensure that their cryptocurrencies would be compatible with Coinbase’s listing and trading technical backend, should the exchange approve these cryptocurrencies for its platform.
