The recent $100 million settlement by BlockFi with the Securities and Exchange Commission (SEC) in mid-February – see press release and SEC order (PDF) – was hailed by some as welcome guidance by the SEC on cryptocurrency and a step forward for the blockchain industry.
In particular, the SEC required the registration of BlockFi’s crypto lending products as a security going forward – an expensive process that could overwhelm less well-capitalized decentralized finance (DeFi) companies.
BlockFi itself declared at the time, “We have worked tirelessly with regulators on your behalf to chart this exciting path forward, and we look forward to our next chapter of pioneering innovative, crypto-powered products for our clients worldwide.” And then, the company announced an SEC-compliant product, BlockFi Yield which replaced the previous BlockFi Interest Accounts which were offered in the U.S.
In stark contrast to her fellow commissioners, the SEC’s Hester Peirce warned in her dissenting opinion in February:
“For the sake of the American public, our own reputation, and the companies that heed our call to come in and talk to us, we need to do better than we have so far at accommodating innovation through thoughtful use of the exemptive authority Congress gave us.”
In an op-ed in this week in The New York Law Journal, Jeffrey Alberts, partner at law firm Pryor Cashman, echoed concerns similar to Peirce’s and saw a devil emerging in the details:
“The SEC’s current enforcement-driven approach to regulating cryptocurrency lending appears to be likely to reduce the availability of innovative lending products registered with the SEC and to increase the use of unlicensed cryptocurrency lending platforms by retail investors. It is difficult to know how this interaction between innovation and regulation will play out, but if the SEC does not alter its current approach, it may be disappointed with the results.”