For many years, the U.S. Securities and Exchange Commission (SEC) has been in disagreement with the crypto community regarding the treatment of interest-yielding crypto products as securities. However, the scenario changed this Monday when BlockFi and the SEC agreed upon a deal to turn crypto lending into a regulated product. It's a first-of-its-kind case concerning crypto lending platforms.
SEC stated in its report that BlockFi provided crypto-lending products to more than 60,000 customers without registering it as a security. The report also revealed BlockFi's misleading statements on its website, lying about its loan portfolio and lending activity risk. BlockFi Lending LLC agreed to settle the case with the SEC by paying a $100 million penalty. After the matter is resolved, BlockFi also plans on filing with SEC to register BlockFi Yield product as security.
BlockFi is a big name in the crypto lending industry and has been offering its services for quite some time, making sense why SEC would go after it. There are platforms like Celsius Network and Nexo that offer similar crypto-lending and borrowing services. Others offer features like converting fiat currency into stablecoins, with attractive yields on staking them. With BlockFi filing its services like security, other companies are expected to follow the lead to stay in the competition. Only a small number of crypto yield products in the market are currently under regulation, like Circle's Circle Yield and Compound Lab's Treasury Product. But unlike the services of BlockFi, Nexo, and Celsius, these products are only open to accredited investors.
Cryptocurrencies and their derivatives are entirely dependent on the market. Investors will go where they get high yields on their investments. Despite the rate hikes signaled by the Fed, the interest rates at traditional savings accounts are pretty low. More than $200 billion is currently locked or deposited in various DeFi platforms. More and more traditional investors, including institutional entities, are warming up to DeFi alternatives of conventional banking services.
The regulators have yet to address DeFi products directly, but the SEC is already looking at some companies that helped start DeFi protocols. The list includes Uniswap Labs, the company involved in launching the decentralized crypto exchange Unisawp. So, on one hand, the regulation provides a stamp of approval to the new crypto-derivative market. But on the other hand, these regulations will force investors to look for genuinely decentralized services that are entirely out of the reach of any regulator. Stay tuned with Bitcompare, as we keep you updated with everything happening in the world of borrowing and lending digital assets.