- Stacking on Coinbase
- Regulators are actively looking for a breach of law
- Coinbase is not the only exchange with problems
- Hedge funds are also under scrutiny
According to Coinbase Global Inc., the US Securities and Exchange Commission (SEC) is probing its staking programs that allow users to earn rewards for owning cryptocurrencies. In its quarterly regulatory filing, the company reported that it “has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations and existing and intended future products.” The company added that the requests related to Coinbase’s staking programs, as well as asset-listing process, classification of assets, and stablecoin products.
Stacking on Coinbase
Many crypto exchanges offer staking services as a main way to diversify trading income, which usually falls during market downturns. This helps users generate yield from certain crypto assets by delegating them in order to verify transactions and secure the blockchain network.
Revenue from blockchain rewards, mostly from staking, made up 8.5% of Coinbase’s net revenue in the second quarter of 2022. During that period, it decreased by 16% sequentially to $68.4 million, which wsa less than the decline in trading revenue.
Regulators are actively looking for a breach of law
In a letter to shareholders on August 9, Coinbase stated that the SEC had submitted a voluntary request for information, including listings and the listing procedure, in May and does not yet know if the investigation will become formal. Bloomberg previously reported that the cryptocurrency exchange is under scrutiny by the SEC for potentially providing unregistered securities for trading.
“As with all regulators around the world, we are committed to productive discussion with the SEC about crypto assets and securities regulation,” Coinbase wrote in the letter.
Coinbase is not the only exchange with problems
Crypto exchange Bitfinex could face a criminal investigation in the US, according to a Department of Justice (DOJ) response to a Freedom of Information Act (FOIA) request posted on Twitter late Wednesday night, August 10, by user oleh86.
“Dear Sirs, Pursuant to Freedom of Information Act (FOIA), 5 U.S.C. § 552, I am hereby requesting any and all information in the possession of the US Department of Justice on jointly and severally TETHER HOLDINGS LIMITED, TETHER LIMITED, TETHER INTERNATIONAL LIMITED, TETHER OPERATIONS LIMITED, IFINEX INC., BFXNA INC., and BFXWW INC.”
The Department of Justice has so far denied a request for citing Exemption 7(A) of the FOAI Guide. The exemption precludes the disclosure of “records or information compiled for law enforcement purposes, but only to the extent that production of such law enforcement records or information … could reasonably be expected to interfere with enforcement proceedings.”
Hedge funds are also under scrutiny
Hedge funds are a major source of investment in the crypto space. The SEC is suggesting an amendment to the rule that would make it mandatory for private equity funds and hedge funds to provide more information about their investments and assets to better control systemic risk.
This procedure would make it necessary for certain hedge fund and private equity fund advisers to report key events and would also tighten requirements for large private equity advisers and liquidity funds.
“With this final rule, regulators will gain transparency into an important sector of the financial marketplace to better assess risk to the overall system,” said Gary Gensler, the Chairman of the SEC.
In particular, the SEC proposal would expand the requirements for investment risk of large hedge funds and open investment positions to include risk reporting across asset types to provide insight into a fund’s portfolio concentration and large exposures to any particular asset.
In addition, the proposal would expand the reporting requirements for large hedge fund borrowing and financing agreements with counterparties, including central clearing counterparties.
The SEC is taking action in this particular area of the financial sector because private funds have grown about 90 percent since 2010 to $20 trillion in assets. They are expected to become larger than the commercial banking system with a weight of $23 trillion.
Gensler added that if trends continue, the private fund sector will surpass than the commercial banking sector.
