BlockFi Pays $100 Million SEC Fine

We just got ourselves the biggest fine from the SEC in the crypto space (so far) with the SEC fining BlockFi a hundred million dollars!

That is a lot of money! And it’s over their lending product, which has been out for a while. The issue is that they rolled it out without necessarily asking for approval first.

If you remember, Coinbase actually shut down their lend program that they were going to launch because the SEC threatened to sue them. Before they even launched it!

The reason people love these lending platforms or products is because you can get paid a pretty high rate (7%-13) % for your stable coins just holding it on the platform. For those of you wondering how they can pay such a high interest rate, the business model is quite simple. Take the deposits and lend it out at a higher interest rate. They have institutional borrowers that pay a higher interest rate in the crypto space. The other thing is that these rates do change. If the interest is paid out by institutions decreases, they do lower the rates.

When you compare that against your normal saving account rates. The highest rate you can get right now for interest rates for a savings account is 0.5%. You might as well just kiss your money goodbye and it’s purchasing power unless you need something liquid (like an emergency fund). With inflation where it is right now, those percentages are a slap in the face.

I personally have some funds in BlockFi so when I saw this news, my initial thought was “oh shit, is the money safe?” The first thing I did was went to Twitter, went to the BlockFi account, and they addressed it right away. As soon as the article came out, they essentially said everything was safe and they weren’t going to comment on market rumors. I also went to Zac Prince’s twitter (CEO of the company), he also made a similar comment.

The good news is that today more information came out about the settlement from BlockFi’s side, where they actually published more details on what exactly was going on. Zac Prince reiterated that the assets or funds are safeguarded and accessible (no issues there) and that the client funds are not being utilized to pay for the settlement. Something tells me they’re not necessarily hurting for cash because in 2021 they did a raise of capital around $350,000,000.

In terms of what’s affected, the only thing that the SEC was really targeting was that BlockFi interest account. All the other products that BlockFi has are not affected. For current clients, you’re able to maintain your account and continue to receive interest, but the caveat is you can’t add new assets to that interest account. If you’re a newer customer trying to get access to the interest account, unfortunately, you won’t be able to. They are working on a new product that they’re calling BlockFi yield (essentially will be the same thing), they’re just going through the correct process of registering it. That will just be the replacement if it gets approved. Everyone outside of the US, this doesn’t affect you at all.

The second thought I had is if BlockFi got in trouble, who are they going to come after next? You have Celsius, you have Gemini, you have Crypto.com. You have all these other companies that offer a lending product. Are they also in trouble? Are they going to get chased by the SEC?

I think if anyone didn’t have regulatory approval for their product and didn’t get the go-ahead from the SEC, it will probably be dealing with the same situation. Good news though for all those guys is that it wasn’t a cease and desist. The SEC did not shut down BlockFi and say “hey, no more lending product”. They gave them more clarity with the settlement and the pending approval of BlockFi yield (their new interest product).

I think companies like Coinbase would be more confident in relaunching their crypto lending product now, once they have all the clarification and see other firms getting approved for their interest related accounts.

As for DeFi platforms, who does the SEC go after? They can’t really go after anyone because there’s no face attached to the business. But if there’s any developers that are attached to a DeFi platform those are the ones that I’d be worried about because the SEC may eventually get around to knocking on their doors and trying to understand. How does this product work? Is it actually safe? And something tells me with a DeFi platform they’re not going to be in compliance or have the regulations that the SEC wants.

To conclude, I think this is good for the crypto space as a whole because companies actually know what they can and cannot do. They are creating the products in a legitimate way, making sure that consumers are safe.

This article was generated from the following Youtube Video: