Gemini sued over Earn product, are yield products considered securities?

Gemini investors filed a class-action lawsuit on 12/27 in Manhattan federal court, accusing the cryptocurrency exchange Gemini of selling them interest-bearing accounts that were not registered as securities. Investors claimed in the lawsuit that if the product had been registered, investors would have more information to assess the risks. Zhu Su, founder of Three Arrows Capital, also recalled the past and pointed out that the SEC had blocked Coinbase's Lend product last year, sparing Coinbase from a similar predicament.

Gemini Earn

The cryptocurrency exchange Gemini announced on 11/16 that due to Genesis suspending its lending business, one of the partners of their yield product "Gemini Earn," withdrawals from the product have been suspended. They have also formed a creditors' committee to actively pursue funds for customers. On 12/21, the platform was suddenly announced to undergo maintenance, and there have been no further updates since then.

According to a report by CoinDesk, Gemini investors filed a class-action lawsuit on 12/27 in the Manhattan federal court, accusing the cryptocurrency exchange of selling them interest-bearing accounts that were not registered as securities. Investors stated in the lawsuit that if the product had been registered, investors would have been able to assess risks based on more public information.

Coinbase Lend v.s. Earn

Zhu Su, founder of Three Arrows Capital, also recalled that in 2021, Coinbase attempted to launch the Coinbase Lend product, boasting a high interest rate of 4% on USDC when the U.S. federal benchmark interest rate was 0.25%. However, the SEC intervened, citing securities violations and intending to sue directly. Coinbase ultimately announced the abandonment of the product issuance. Zhu Su claimed that the SEC's actions saved Coinbase, as otherwise, Coinbase might have faced a situation similar to Gemini's today.

Think SEC actually saved Coinbase's entire business by not letting them launch Coinbase Lend last year

Might be the only reason they aren't in the same situation as others nowhttps://t.co/m10CP6Ray0

— Zhu Su 🔺 (@zhusu) December 28, 2022

However, Coinbase later launched Coinbase Earn, providing alternative sources of income through staking and DeFi products. DeFi products are not applicable within the U.S., offering a fixed deposit interest rate of 1.5% for USDC recently to save its stablecoin USDC's market share issued jointly with Circle.

Cryptocurrency bankruptcies have been spreading from overseas to Taiwan in waves, and the legality of products that claim high returns has become a focus of investor attention. The subsequent judgments of courts and regulatory authorities are believed to significantly influence the future development of the cryptocurrency industry.