Crypto lending is one of the main ways crypto holders grow their holdings. Some services, like BlockFi, work like a savings account where you deposit crypto and earn interest when the service loans it out to other folks.
However, BlockFi and the SEC recently settled a case that resulted in a major fine.
What Happened Between the SEC and BlockFi?
The SEC hit BlockFi, one of the best crypto apps for beginners, with a total of $100 million in penalties for operating unlicensed securities accounts and not disclosing the risks of those accounts to users for the last three years. According to the agency, BlockFi wasn’t clear about the level of risk their interest accounts had by not disclosing how much of BlockFi’s worth was tied up in crypto loans.
Half of the total penalty went to the SEC itself, citing BlockFi’s three years of misleading its customers. The remaining $50 million went to various states also suing BlockFi over its practices as recompense for their actions.
Finally, the SEC stated that BlockFi had 60 days to change its business practices, including the stoppage of creating new cryptocurrency interest accounts for United States citizens.
How BlockFi Responded
This tidbit might surprise some folks, but BlockFi happily complied with the SEC. In fact, the SEC mentioned that, despite this case resulting in a historic penalty amount, it would be higher if BlockFi hadn’t cooperated the entire time.
Over the last year, BlockFi communicated to its users that they were under investigation by the SEC. As a result, BlockFi had taken some steps to get ahead of the SEC ruling, such as regular updates about the investigation and the cessation of new interest accounts in states joining in on the suit.
BlockFi took each of these steps under the claim that they want to work with the federal government to create a better understanding of how cryptocurrency services will operate in the United States. Now with the fine levied, BlockFi has been happy to pay out the money and work with the SEC to improve their clarity and services.
Where Do Crypto Apps Go From Here?
With this suit settled, BlockFi’s next task is to work with the SEC to create the first SEC-registered cryptocurrency interest-bearing security. In other words, BlockFi wants to make a crypto interest account that follows all the SEC’s rules by working with the SEC while they create the service.
The implications of this could be huge if BlockFi can pull this off. American-based crypto exchanges and services like Coinbase and Stellar have been to the U.S. capital several times to discuss cryptocurrency topics and regulations with Congressional committees. If BlockFi can create an interest account that follows federal guidelines, other services could use that service as a springboard for new service ideas to legally and fairly compete with BlockFi.
Plus, as the potential first company to create an SEC-registered crypto service, BlockFi could cement its position as one of the leading cryptocurrency interest-bearing service providers. People trust banks and credit unions thanks to FDIC insurance on the accounts, so this relationship between BlockFI and the SEC could lead to something similar to crypto.
Finally, having a cryptocurrency service legitimized by the government could impact opinions on cryptocurrency. As a budding asset class, there is some hesitation around crypto. As federal governments continue to work with these services, the perception of cryptocurrencies could improve over time.
BlockFi Forges a Path for Future Apps
In a way, BlockFi seems to be happy leading the way for other American crypto services. Thanks to its success, BlockFi had the resources to take this penalty on the chin and work with the American government. It seems that BlockFi plans to forge a path for other crypto apps to allow the space to grow, possibly creating more customers for BlockFi along the way.
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