Crypto lending regulation in the US

Financial regulators in the US have been closely monitoring the activities of several crypto platforms over the past few months. Several commentators consider this development a positive sign for the industry since regulators do not intend to shut down the crypto space and have instead shown an appetite to regulate it.

Instead of closing down the crypto lending space, most regulators in the US are applying existing financial laws to manage the products and services offered within the crypto industry. These laws are designed to regulate the activities of crypto exchanges, crypto lending firms, and decentralized finance protocols.

It is important to point out that each regulatory agency has a different perspective on products and services offered to investors within the crypto space. For instance, the Financial Crimes Enforcement Network (FinCEN) views digital assets as a medium for transmitting funds.

On the other hand, the Internal Revenue Service (IRS) views digital assets like properties and requires holders to report their crypto transactions on their tax returns. Despite their differing views, regulators' primary goal is to ensure protection for crypto traders.

In the United States, the crypto lending sector has come under intense scrutiny by financial regulators. A significant reason for this scrutiny can be attributed to investment opportunities offered by many crypto lending platforms.

Regulators have repeatedly stated their belief that many digital assets and financial services offered by crypto loan platforms are unregistered securities. As a result, monetary authorities have begun to apply securities laws to regulate the activities of crypto lenders within their jurisdiction.

If you are new in this space, you may wonder what securities mean? And how are securities laws applied? Follow along as this article will provide answers to both questions.

We will also consider the type of investment opportunities most crypto lending platforms offer in the US. Finally, this article will discuss some upcoming regulations and how they will affect the activities of crypto lenders in the US.

What are securities?

The word security can be described as an exchangeable financial asset with monetary value. In many cases, securities have been used to raise funds in private and public markets.

Nevertheless, we must be clear that assets considered securities in one jurisdiction may not be treated the same way in another location. The securities and exchange commission (SEC) is responsible for overseeing the securities markets in the US.

The SEC was created in response to the 1929 stock market crash. The US congress empowered this agency to oversee the securities markets after enacting the US Securities Act of 1933 and the Securities Exchange Act of 1934.

Currently, the SEC oversees securities that fall under three main categories. They include:

  • Equity securities – they comprise securities like stocks
  • Debt securities – these include banknotes and bonds
  • Derivatives – options and futures fall under this category

Investment opportunities offered by crypto lending firms

As their name suggests, crypto lending platforms primarily offer crypto lending accounts, or savings accounts to lenders. Compared to traditional bank accounts, these financial services offer higher yields to investors. For example, the BlockFi interest account rewards users with up to 7% APY on some crypto assets. Similarly, investors can earn up to 13.16% APY with the Celsius savings account on crypto deposits.

Apart from providing access to investment opportunities, crypto deposits into interest accounts are used to fund crypto loans issued to individual borrowers and institutional investors.

Due to the high annual percentage yield (APY) attached to the interest accounts offered by crypto firms, investors are often at risk of losing all of their investments. Additionally, these crypto lending platforms have total control over all digital assets deposited on their platforms. As a result, in case of hacks or thefts, investors may lose significant portions of their assets.

The two factors stated above and the need to regulate the activities of crypto lending platforms has driven regulators within the US to use existing financial laws to control this subset of the large crypto industry.

Crypto lending & federal securities laws

In the United States, the securities and exchange commission (SEC) has taken the lead in monitoring and regulating the activities of crypto lending firms. However, many other state regulators within the US carefully observe the actions of crypto lenders within their jurisdiction.

Concerning the services offered by most crypto lending platforms, all of these agencies agree. The consensus is that many digital assets and financial services crypto lending platforms offer are securities.

As a result, these agencies expect crypto lending platforms to provide services conforming to federal securities laws. The recent enforcement action against BlockFi's Lending LLC made this point clear.

In a statement issued after the settlement, the SEC indicated using Howey's test and Reves's test to determine assets and products that qualify as securities. In the case of BlockFi, the SEC determined that the lender's interest accounts meet the criteria to be considered an "investment contract" using the Howey test. This product also qualifies to be considered a "Note" using the Reves test.

BlockFi must register with the SEC as an investment company as part of the settlement. Similarly, any new products from this platform that might be considered securities must be registered with the SEC. Additionally, BlockFi was required to pay $100 million to the SEC and a group of state regulators involved in the settlement.

This enforcement settlement indicated the SEC and other state regulators' approach to regulating the crypto lending sector.

Future Regulations for crypto lending platforms in the US

In addition to the methods adopted above, the SEC plans to deploy new initiatives to regulate the crypto lending space over the coming months and years.

All lending platforms and crypto exchanges with digital assets that qualify as securities will have to register with the SEC as part of these new initiatives. Further, this agency plans to remove total asset custody control from lending platforms and exchanges. The initiative is aimed at ensuring investor protection.

Working closely with the Commodity Futures Trading Commission (CMTC), the SEC aims to accomplish all of its outlined goals for the crypto lending sector within a short period. Together these regulators will monitor and ensure platforms trading security tokens and crypto-based commodity digital assets comply with existing securities laws.


Although the crypto lending industry is still at its nascent stage, financial regulators in the US have been monitoring its growth. The forced settlement between BlockFi, the SEC, and state regulators indicated the SEC and other state regulators' direction in the crypto lending sector.

In addition, there are many other new plans underway designed to guide the conduct of crypto loan companies and their products and services. Successfully implementing these regulations can set a precedent for financial agencies worldwide. Additionally, these steps can lead to a more regulated crypto lending space across the globe.

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