New Jersey, Texas, and Alabama have individual state regulators raising concerns that New Jersey-based DeFi firm BlockFi is offering unregistered securities. Regulators seem to be pointing out BlockFi’s Interest Account (BIA) in particular, which offers interest rates that consumers are now getting used to in DeFi – but which have blown traditional bank rates out of the water.
The “unusual three”
Crypto, in its relatively early appearance in discussions of regulation and wider adoption, has largely been viewed as a somewhat bipartisan topic. Which makes the three states that are following BlockFi into a particularly unusual trio. New Jersey, the company’s home state and traditionally a very democratic state, is arguably the most aggressive of the three states to bring claims against the company. New Jersey has ordered BlockFi to stop selling its BIA product to citizens through July 29, according to a recent cease and desist notice from the state’s Bureau of Securities.
Texas, a traditionally Republican-run state, has also issued a cease and desist statement, the hearing of which is currently set for October. The document also cites BIAs as a concern, noting that BlockFi “illegally finances some of its lending and proprietary trading through the sale of unregistered securities in the form of cryptocurrency interest accounts.”
Finally, in Alabama we have another typically Republican-run state that issued a “Show Cause Order” to BlockFi last week. The company now has less than 30 days to show the state securities commission why it should not issue a cease and desist from selling unregistered securities. The Show Cause document suggests that BIAs should be registered with the relevant securities regulators.
In the case of BlockFi at least, it’s becoming pretty clear lately that regulatory hurdles don’t live on any particular side of the political corridor.
Bitcoin's can be deposited into BlockFi's BIA product to yield substantial interest-bearing returns. | Source: BTC-USD on TradingView.com
Related reading | Uniswap restricts access to certain tokens, which could mean for the DeFi sector
Is DeFi in trouble?
BlockFi recently responded in a tweet It stated that the company wholeheartedly believed its BIAs were “lawful and appropriate for crypto market participants,” adding that the company “welcomes discussions with regulators and believes that proper regulation of this industry is key their future success is ”.
Difficult to say the impact of aggressive regulatory attacks on DeFi at such an early stage, especially given the big players in the return generation space, only BlockFi is highlighted here. Will other states join these three and will large BlockFi competitors also face challenges? Or are these government regulators just cracking the proverbial whip – or are there enough significant differences in the way BlockFi competitors like Nexo or Celsius fund their interest-bearing accounts so that they bear less regulatory risk? Either way, it becomes abundantly clear that crypto’s relatively quick mainstream success, coupled with slow federal decision-making, will present emerging businesses – but hopefully not forward-thinking consumers – with some inherent challenges.
Related reading | Tether to conduct an audit to negate claims of transparency
Featured image from Pixabay, Charts from TradingView.com