The agreement between the Securities and Exchange Commission and BlockFi shocked the world of decentralized finance, known as DeFi.
The players in this emerging industry, which makes no secret of its intention to relegate traditional banks to oblivion and promises financial inclusion, are still analyzing the message the federal regulator and the states sent to them.
But judging by the very few official reactions or the refusal to speak on the issue, it is an understatement to say that the SEC has sent over a bombshell into the industry.
The $100 million settlement “Is A Watershed Moment For Crypto Industry,” wrote Anthony Pompliano, a crypto investor and one of the most important influencers in the cryptosphere.
DeFi simply aims to offer financial services without intermediaries. In the traditional financial system, the banks are the main depositories of the funds and that guarantee the exchanges. With DeFi, users keep their funds in their personal wallets. Transactions are made directly from user to user via the blockchain and digital contracts (called smart contracts) created by specific apps.)
The Settlement: What Led Up to It?
BlockFi, one of the pioneer crypto startups, agreed with the SEC and states to settle an investigation into one of its star products. The crypto startup was fined $100 million.
Worse, BlockFi will have to register its savings-account product, BIA, as a security, which raises the question of its competitiveness against traditional banks.
The portfolio of BlockFi, one of the pioneering startups in DeFi — no middlemen — is the envy of rivals and mainstream banks. The group has developed a host of products including lending against crypto collateral, interest-bearing accounts, crypto exchange and a credit card whose benefits are remunerated in bitcoin.
BlockFi is also known for developing interest-bearing accounts and the bitcoin credit card.
It is this product, BlockFi Interest Account (BIA), that has been the subject of SEC investigations since last summer. It resembles the savings accounts offered by traditional bank — with the only difference that BlockFi offers a 9% interest rate, a huge opportunity in the current period of near zero rates (the Federal Reserve is expected to raise rates several times this year to curb inflation.
One of the reasons BlockFi and other DeFi firms offer high interest rates is that they share the majority of savings-account earnings with savers. You add to this an imbalance between supply and demand.
BlockFi had calculated that by offering these accounts in bitcoin and cryptocurrency, instead of dollars, the company would not have to comply with the legal rules imposed on banks.
The SEC decided otherwise. As reported by TheStreet, the regulator declared that what the Jersey City, N.J., firm called BlockFi interest accounts were securities and required…
Read More: www.thestreet.com