The decision to shelve its Lend product, which the company announced quietly in an update to an old blog post at 5pm on Friday, comes after the Securities and Exchange Commission threatened to sue the firm if it moved ahead.
It also represents a dramatic reversal for Coinbase, whose top executives made its skirmish with the SEC public in defiant social media posts on September 7.
Coinbase’s about-face comes as the SEC under chair Gary Gensler takes a tougher line on cryptocurrency products that may fall under the agency’s purview and the platforms that they trade on.
The planned Lend programme, which would have let users earn 4 per cent by lending their tokens, has become a flash point in growing tension between the regulator and the burgeoning cryptocurrency industry.
“As we continue our work to seek regulatory clarity for the crypto industry as a whole, we’ve made the difficult decision not to launch,” the firm said in its September 17 post.
“We had hundreds of thousands of customers from across the country sign up and we want to thank you all for your interest. We will not stop looking for ways to bring innovative, trusted programmes and products to our customers.”
An SEC representative declined to comment.
US investors in many ways consider Coinbase, the largest American digital-asset trading platform, to be a standard bearer for the entire industry.
In April, the company’s valuation surged to as much as $89 billion when it went public through a direct listing on the Nasdaq stock exchange just as Bitcoin surged to a record high. It has also built up a cadre of experienced securities lawyers to represent it before regulators.
For his part, Mr Gensler’s plans to crackdown on what he calls the “Wild West” of finance have earned him rebukes from trade groups and more recently powerful Republican senators. However, the loudest criticism yet has come from Coinbase itself.
In a September 7 Twitter tirade over the SEC’s opposition to Lend, Coinbase chief executive Brian Armstrong accused the regulator of “sketchy behaviour” and “intimidation tactics”.
The post won praise from cryptocurrency die-hards among his 825,000-plus followers, but also stoked concern that he was taking a cue from Tesla founder Elon Musk in doing battle with the agency at a time when the crypto industry was seeking broad acceptance.
On Friday, when announcing its plans to back away from Lend, Coinbase took a much more muted approach. The company mentioned it as an addendum to a June 29 post on its blog, where the company posts news.
The post was not billboarded on the website. No press release was sent or potential customers who signed up early for the programme contacted. It was not signed by Mr Armstrong or Paul Grewal, the company’s chief legal officer, who also blasted the SEC on September 8.
To be sure, having to shelve Lend is a major blow for Coinbase as the company tries to diversify revenue beyond its trading fees.
The company is also playing catch-up with competitors such as BlockFi Lending, which are already offering higher yielding products.
New Jersey is among states that have ordered BlockFi to stop marketing some products. There are also no indications that the SEC green-lit BlockFi’s product.
In his comments on September 7, Mr Armstrong blasted the SEC for not working with Coinbase to launch its lending product.
“We’re being threatened with legal action before a single bit of actual guidance has been given to the industry,” Mr Armstrong said on Twitter at the time.
Coinbase on Monday declined to comment further on the blog post.