BlockFi yields to the SEC
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BlockFi yields to the SEC

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: BlockFi yields to the SEC, how a DAO was done dirty, and Ripple eyes a euro move.

Off the chain

If Crypto Dad says no, can you go to Crypto Mom? There’s an interesting dynamic at the SEC, with Commissioner Hester Peirce often dissenting with the agency’s decisions on crypto, both formally and in speeches. It’s easy to think of the agency as monolithic, and the SEC chairman’s dual role as both overseer and administrator tends to reinforce that. Peirce, whose industry-friendly views have won her the “Crypto Mom” title, may not be able to direct the agency’s workforce as Gary Gensler can. But she’s worth listening to, which is why you can expect to find her often in our Overheard section, where she offers a differing view on BlockFi’s SEC settlement.

— Owen Thomas (email | twitter)

Neither an unregulated borrower nor a lender be

For years, the crypto industry and the SEC have disagreed on whether crypto products that pay an interest-like yield are securities. That changed yesterday when the SEC and BlockFi announced a deal to bring crypto lending in from the cold and turn it into a regulated product.

BlockFi agreed in a settlement with the SEC to pay a $100 million penalty for selling its crypto lending product without registering it as a security. And it also said it plans to file with the SEC to register its BlockFi Yield product as a security.

The SEC had made its views on crypto lending clear. That crystallized in September when the agency forced Coinbase to drop its planned Lend product.

  • The move came a month after SEC Chairman Gary Gensler made a speech at the Aspen Security Forum in which he said that these products are securities and should be regulated as such.
  • While the SEC has other crypto issues on Gensler’s to-do list, such as regulating crypto exchanges, crypto lending seems to be at the top right now.
  • According to some legal experts, that’s because it’s a slam-dunk issue for the SEC, where it doesn’t have to wait for congressional action and can instead rely on existing law, a legal principle called the Howey Test and a 2004 Supreme Court case.

BlockFi was a natural target. It’s one of the largest players in crypto lending and has been offering the service for some time.

  • There are others such as Celsius and Nexo that offer similar services. Others convert fiat currency that customers deposit into stablecoins, on which there are a variety of ways to offer attractive yields.
  • With BlockFi agreeing to settle, it’s likely other companies offering crypto lending will either try to make their products compliant or face SEC inquiries.
  • There are only a small number of regulated crypto yield products, such as Circle’s Circle Yield and Compound Labs’ Treasury product. But unlike BlockFi’s product, those are institutional products only open to accredited investors.
  • The SEC has approved some other crypto products. In January, it greenlighted a stock exchange, BOX Exchange, which uses blockchain technology. It also last year approved two bitcoin futures ETFs, Proshares Bitcoin Strategy ETF and the Valkyrie Bitcoin Strategy ETF, but hasn’t approved any ETFs that invest directly in cryptocurrencies.

The SEC’s work is far from done. One question it will face in reining in crypto lending: How do you regulate something that is not a company?

  • A lot of crypto lending is happening in Web3’s DeFi (decentralized finance), meaning it’s outside of the conventional corporate structures the SEC is used to dealing with.
  • Many crypto lending services operate as decentralized protocols, with no one company controlling them. Individuals working on them are often based overseas and may not be U.S. citizens.
  • Some of the protocols were originally started by a company, but governance of the protocol is often shifted to token holders. As a result, it’s unclear how the SEC could shut these products down, even if it wanted to.

Investors will go where yields are high. Despite the Fed’s signaling of rate hikes, rates for traditional savings accounts are still relatively low.

  • There is now more than $200 billion in total value locked or deposited on DeFi services. More investors, including large institutional entities, are making bets on DeFi.
  • Regulators haven’t directly addressed DeFi products. However, the SEC has reportedly looked at some companies that helped start DeFi protocols, such as Uniswap Labs, the company behind decentralized crypto exchange Uniswap.

The downside of the emerging regulatory regime for crypto lending is that it may send the savviest investors looking for the highest yields from truly decentralized services, out of the reach of regulators. But the upside is that SEC scrutiny and the resulting stamp of approval may bring a broader base of financial consumers looking for trustworthy products into the mix.

— Tomio Geron (email | twitter)

A version of this story first appeared on Read it here.


As the race to financial innovation accelerates, Banking-as-a-Service is carving out an essential role within it. Not a bank but not a standard fintech, Banking-as-a-Service falls between the two, utilizing strengths of each to create something new. Read Demystifying Banking-as-a-Service to gain insight on how BaaS connects the digital economy.

Learn more

On the money

A U.K. regulator seized three NFTs in connection to a $1.9 million fraud case. Her Majesty’s Revenue and Customs arrested three individuals and seized around $6,762 worth of crypto assets, as well as the digital artworks, on which it didn’t place a value. It is the first authority in the U.K. to seize NFTs.

New Hampshire now has a commission that will investigate bitcoin-related legislation. New Hampshire Gov. Chris Sununu signed an executive order to establish the commission in an effort to prove a “commitment to attracting high quality banking and financial businesses in a safe and responsible manner.”

Build Finance DAO suffered a loss of $470,000 in a “hostile governance takeover.” An unknown person managed to obtain full control over the DAO’s treasury and minting keys, which allowed them to clear out the project’s assets.

On Protocol: Over 20 million people visited Coinbase’s landing page within a single minute after it aired a Super Bowl ad consisting of a QR code and nothing else. Coinbase CMO Kate Rouch told Protocol that “the best way to get people to learn about crypto is to try it.”


Then again, the best way to get people to try Web3 might be … to make sure your Web 2.0 is working. “Coinbase spending $16,000,000 on a Super Bowl ad to direct people to their website and $0 to make sure that website doesn't crash 10 seconds after the ad starts is so very internet,”tweetedEdward Snowden.

International Monetary Fund Managing Director Kristalina Georgieva thinks that CBDCs are the future of money, but only if done right. “If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability and lower costs than private forms of digital money,” she said in a speech last week.

SEC Commissioner Hester Peirce, aka “Crypto Mom,” thinks that BlockFi’s $100 million settlement with the SEC is “disproportionate,” and that the SEC should do better. “Is the approach we are taking with crypto lending the best way to protect crypto lending customers? I do not think it is, so I respectfully dissent,” she said in a statement.

Deal flow

Ripple partnered with the Digital Euro Association to work on CBDCs. The partnership includes joint educational efforts on digital currencies and knowledge exchange, as well as work on a possible digital euro.

Banked raised $20 million. The payment network company’s series A round was led by Bank of America and Edenred Capital Partners.

Alchemy is now valued at $10.2 billion after raising $200 million. The crypto startup’s latest fundraising round was led by Lightspeed and Silver Lake, with participation from existing investors like Andreessen Horowitz, Coatue and Pantera.

Happy Money reached unicorn status. The lending-tech company’s latest fundraising round raised its valuation to $1.1 billion. The $50 million series D-1 round was led by Anthemis Group and CMFG Ventures.

Tonik raised $131 million. The neobank’s series B round was led by Mizuho Bank, with participation from existing investors like Sequoia India, Point72 Ventures and Insignia.

Terra inked a $40 million deal with the MLB’s Washington Nationals. The five-year sponsorship deal will include a digital series for the team’s social media platforms and adding Terra signs and logos to Nationals Park.

Philippine Digital Asset Exchange raised $50 million. The crypto exchange’s series B round was led by Tiger Global, with participation from Ripple, Kingsway Capital and Jump Capital.

Betterment acquired Makara, a crypto manager. The digital investment adviser made its leap into crypto through the acquisition, aiming to provide retail investors and adviseors the ability to invest in crypto portfolios alongside existing investments.


As the race to financial innovation accelerates, Banking-as-a-Service is carving out an essential role within it. Not a bank but not a standard fintech, Banking-as-a-Service falls between the two, utilizing strengths of each to create something new. Read Demystifying Banking-as-a-Service to gain insight on how BaaS connects the digital economy.

Learn more

Thanks for reading — see you tomorrow!

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