Coinbase: Regulatory Framework for Bitcoin

by baaaawz

Coinbase is taking on the regulatory issue of Bitcoin and crypto-assets and wants its voice to be heard on the issue. Coinbase will propose a regulatory framework that can bring clarity to this debate after the SEC finally ruled against the launch of its Lend product.

Regulatory Framework for Bitcoin: The Definition of Securities

Coinbase is currently working on a regulatory framework for cryptocurrencies that it will propose to U.S. regulators. The exchange plans to disclose details of that proposal in the coming days. Coinbase wants to give its opinion on what should – and shouldn’t – be defined as a security in the U.S.

Coinbase is a cryptocurrency company based in San Francisco, California. It operates exchanges of Bitcoin, Ethereum, Litecoin, and other digital assets with fiat currencies in 32 countries, and Bitcoin transactions and storage in 190 countries worldwide. Coinbase’s services are available to both retail and institutional customers.

This means that Coinbase wants to keep up with SEC regulations by making sure they are not having an exchange that isn’t registered with the SEC or claiming any coins are exempt from laws governing securities offerings when they’re not.

What is the Regulatory Framework for Cryptocurrencies?

To understand the regulatory framework, it is important to know how Bitcoin and other cryptocurrencies are created. Bitcoin is made by “mining” for coins. Miners earn Bitcoins by adding transactions to the ledger, called the blockchain, and they produce new coins as a reward. They do this by solving a puzzle that becomes progressively more difficult as more Bitcoins enter circulation.

The Coinbase regulatory framework presents a simple idea of what the future of cryptocurrencies could be in America. The company has been working on a regulatory framework for cryptocurrencies that it will propose to U.S regulators – the SEC and CFTC-and believes that their proposal will help legitimize cryptocurrency trading in mainstream finance.

This news comes just after Coinbase decided to drop the launch of its Lend program, which pays 4% interest on USD Coin (USDC) deposits from the platform’s customers. 

The SEC sent a letter threatening Coinbase with legal action if the exchange launched Lend. The Commission believes that Lend is a security and as such should be registered and subject to the regulator’s jurisdiction.

Regulatory Framework: Coinbase and the Coordination of Crypto Projects

Coinbase is a founding member of the Crypto Rating Council (CRC), established in 2019. The CRC’s mission is to distinguish between cryptocurrencies that can be defined as securities and those that cannot. The group rates a cryptocurrency from 1 to 5, depending on how similar it is to a security.

Coinbase also shared other frameworks aimed at coordinating efforts to develop cryptocurrencies. In particular, the company released an open-source technical framework for cryptocurrency developers in 2020 to ensure that projects using the framework would be compatible with Coinbase’s technical quotes and trading backend. 

This would allow projects to ensure that their cryptocurrencies are integrated, at least technically, into exchange products.

The current regulatory framework creates a sense of insecurity for crypto projects, whose definition as securities or not is not clear to developers. Coinbase’s initiative on paper may avoid a repeat of Lend’s misadventures, but also a tug-of-war between Ripple (XRP) and the SEC, as the Commission has no intention of letting up.

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