$100 million fine levied by crypto lending specialist BlockFi to settle regulators’ claims sets the bar for other blockchain-based finance startups that may come under scrutiny by the regulator. Securities and Exchange Commission.
Regulators alleged BlockFi failed to register its loan product as an interest-bearing security. The New Jersey-based company offers a savings product that allows users to lend their digital currencies at a rate of up to 9.25%, which is significantly higher than that paid by traditional financial institutions.
“BlockFi hasn’t been very transparent. I think that’s part of the reason the SEC sued them,” said PitchBook fintech analyst Robert Le. “These are new products, so no one really knows what the real risks of these products look like.” Users still don’t know whether or not they can lose their bitcoin and ethereum if they loan them out or if the product is 100% risk-free.
Regulators are also reportedly investigating the digital lending practices of Celsius, Gemini and Voyager Digital.
“Other vendors could either register their products with the SEC or try to fight it out in court,” Le said. He predicts that Celsius, whose business is mainly based on crypto loans, will try to prove that they are not security products and therefore do not need to be registered with the SEC . Celsius raised a $750 million Series B at a valuation of around $3.5 billion in November.
Le noted that if the SEC does not approve these products and the courts accept the decision, the crypto loans could be transferred to decentralized finance companies such as Compound and MakerDAO. He added that companies like BlockFi and Celsius could also integrate DeFi products into their back-end platforms. According to DeFi protocols, the SEC cannot hold any centralized party like BlockFi accountable, Le said.
“I think these products will exist simply because they are in high demand by consumers,” Le said. “We just don’t know if it’s going to be regulated, unregulated or a combination of the two.”
BlockFi said in a statement that it plans to register its high-yield crypto savings offering with the SEC. In the meantime, existing US-based customers will continue to earn interest, but will not be able to add new assets.
The company raised $850 million in two rounds last year, backed by investors including Bain Capital, Tiger Global and DST Global and was last valued at $4.75 billion in July, according to data. PitchBook data.
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