The SEC is investigating the status of crypto lending products – is that incubating a new cuckoo egg?


The US Securities and Exchange Commission is investigating three companies to determine whether their crypto lending products are securities – is the SEC picking a new cuckoo? Ripple says hello

The US Securities and Exchange Commission is investigating the activities of three crypto companies related to the distribution of crypto lending products. They are crypto exchanges Voyager Digital and Gemini Trust, owned by the Winklevoss family, and crypto lender Celsius Network.

The investigation concerns companies that pay their customers interest on crypto deposits, reports Bloomberg. To date , none of these companies have been accused of wrongdoing. However, the regulator is examining whether crypto lending products would need to be registered with it as securities.

New Cuckoo’s Egg of the SEC?

Just like certain banks allow their customers with fiat money, certain crypto service providers allow their customers with cryptocurrency to deposit it with them, on which they pay interest. They lend the deposited cryptos to institutions to cover their crypto trading positions. However, unlike banks, the crypto companies offer much more attractive interest rates. Additionally, some crypto lending platforms, especially the decentralized ones, do not have any KYC (Know Your Client) procedures. Instead, they use smart contract technology to automatically and anonymously process financial services between customers.

The U.S. Securities and Exchange Commission has been lenient on crypto lending products so far. For the most part, only warnings have been issued about the likelihood that such offers could be classified as securities.

On the other hand, it threatened to sue leading crypto exchange Coinbase when it proposed a similar offer last year. The company pointed out that it had informed the regulator of its plans in advance. Coinbase also alleged that there are numerous other crypto players in the financial industry that are offering crypto lending products with no legal action taken against them. Eventually, the exchange was forced to abandon the program to avoid a lawsuit.

More on the topic: Coinbase Discontinues Plans to Launch Cryptocurrency Lending Product Following SEC’s Warning

Are Crypto Lending Products Securities?

Despite the SEC’s relative passivity, some states have been less friendly. Last July, crypto firm BlockFi faced allegations of violating securities laws from three regulators in Texas, Alabama and New Jersey within a week. One of the notices served on the company said compliance required “registration of securities, registration of dealers and agents, and truthful disclosure of all known material facts.” Celsius was also targeted by regulators in Kentucky, Alabama, Texas and New Jersey. This and other companies have even been threatened with being banned from doing business.

At this time, the SEC has yet to officially confirm its latest investigation. However, Voyager, Gemini and Celsius have said they will fully cooperate with any investigation.

Leave a Reply

Your email address will not be published. Required fields are marked *