Three US States’ Regulators Going After DeFi Firm BlockFi
Three US state regulators: New Jersey, Texas, and Alabama have concerns that New Jersey-based DeFi firm, BlockFi, is offering unregistered securities. Regulators seem to particularly interested in BlockFi’s Interest Account (BIA), which offers rates that consumers are now becoming accustomed to in DeFi – but that are killing the business for traditional banks.
When it comes to regulation and broader adoption, the crypto industry is in early stages. Crypto has mainly been considered a somewhat bipartisan topic, which makes these three states going after BlockFi an unusual combination.
New Jersey, where BlockFI is from, is traditionally a very Democratic-run state. Out of the three it is arguably the most aggressive in making claims against the firm. New Jersey has ordered BlockFi to stop offering it’s BIA product to state residents by July 29 according to a recent cease and desist from the state’s Bureau of Securities.
Texas, which is traditionally a Republican-led state, has also issued a cease and desist with a hearing date currently set for October. The document also cites BIAs as a concern, stating:
“BlockFI is, in part, illegally funding its lending operations and proprietary trading through the sale of unregistered securities in the form of cryptocurrency interest-earning accounts.”
And Alabama, another typically Republican-led state in Alabama has issued a ‘Show Cause Order‘ to BlockFi this past week. The DeFi firm has less than 30 days to show the state securities commission why they should not be issued a cease and desist for selling unregistered securities. The show cause document suggests that BIAs should be registered with applicable securities regulators.
All this is showing that regulatory hurdles do not live on any particular side of the political aisle.
Troubles Coming For DeFi?
BlockFi issued a recent responding statement in a tweet that stated that the firm wholeheartedly believed that it’s BIAs were “lawful and appropriate for crypto market participants”, adding that the company welcomes “discussions with regulators and believe(s) that appropriate regulation of this industry is key to its future success.”
In such an early stage of aggressive regulatory attacks on DeFi, it’s difficult to say where this is heading. Particularly given that out of the big players in the yield-generating space, only BlockFi is being highlighted here.
Will other state regulators join these the crackdown, and will major BlockFi competitors start facing challenges as well?
Or are these state regulators simply cracking a proverbial whip – or are there enough substantial differences in how BlockFi competitors, such as Nexo or Celsius, are funding their interest-bearing accounts that leave them absorbing less regulatory risk?
Regardless, it is becoming very clear that crypto’s relatively quick mainstream success, paired with slow-moving federal decision making, will leave emerging firms – but hopefully not forward-thinking consumers – with challenges.
