Ultimate Resource On BlockFi, Celsius And Nexo

Despite the company’s strong business model and experienced leaders, there are significant risks customers need to understand. Ultimate Resource On BlockFi, Celsius And Nexo

With the cryptocurrency market as hot as it has ever been, several of the most established companies in the space have made plans to go public. Although most of the excitement has centered around Coinbase’s direct listing, especially because private sales have valued the exchange at approximately $100 billion, perhaps the more interesting company that investors should analyze is BlockFi.

Unlike Coinbase, which operates as an exchange for both retail and institutional clients, BlockFi is essentially a modern-day crypto bank (without insurance) that pays account holders significantly higher interest than traditional banks.

It is able to pay such high levels of interest because it’s charging even higher rates on the lending side. As long as BlockFi continues to successfully capture the spread between the rates it pays and the rates it collects, it should be able to remain profitable.

Thomas Meyer is the head of marketing for Cove Markets. He previously worked for Peak6 and Spire Trading as an equity options trader. He holds investments in bitcoin and ether.

Outside investors and venture capital firms have taken notice. Earlier this month, BlockFi raised $350 million through a Series D round co-led by Bain Capital Ventures. Based on that raise, the company is valued at approximately $3 billion.

So, all is well, right? Not quite. Despite the company’s strong business model and experienced leaders, there are significant risks that customers need to understand.

‘Extreme Market Conditions’

Several analysts and influencers within the crypto space are excited about the returns that might be generated this year. In fact, according to the four-year cycle theory, this is the year where traders may once again experience the euphoria that occurred in 2017. Plan B’s stock-to-flow model suggests that bitcoin could reach six figures at some point this year.

If that does happen, there will likely be some wild swings on the way there, just as there were in 2013 and 2017. Networks will be congested, Ethereum gas fees will be outrageous, and trading platforms will become overwhelmed with the amount of traffic.

While those are problems that traders can deal with, one issue they won’t accept is having their ability to withdraw suspended. But that’s exactly the risk that BlockFi lists in its interest-bearing account terms:

BlockFi and our third-party partners may experience cyber-attacks, extreme market conditions or other operational or technical difficulties that could result in the immediate halt of transfers and withdrawals of cryptocurrency either temporarily or permanently.

BlockFi is not and will not be responsible or liable for any loss or damage of any sort incurred by you as a result of such cyber-attacks, operational or technical difficulties or suspensions of transfer or withdrawals.

While some of those risks are expected, having withdrawals turned off due to volatility is problematic for a few reasons. Given BlockFi’s extremely limited selection of cryptocurrencies (BTC, ETH, LTC, LINK and stablecoins), customers may want to transfer funds to pursue trading opportunities elsewhere.

In fact, during normal times it still takes more than 24 hours to receive a withdrawal and significantly longer on the weekends.

If a customer submits a withdrawal request on a weekday (Monday-Thursday) before 5 p.m. ET, the withdrawal won’t be processed until 8 p.m. ET on the following business day. If the withdrawal request is submitted on Friday, it won’t be processed until Monday by 8 p.m. ET. The weekend lag is odd considering that crypto trades 24 hours a day, 7 days a week. Why does it take so long?

BlockFi states that the delay is for a security hold, but each account is know your customer-verified at opening. Exchanges such as Coinbase and Kraken process transfers almost instantly, so BlockFi should be able to do so as well. This is where the company’s business model and risk management process come into question.

One of the main points highlighted in the company’s mission statement is transparency builds trust. BlockFi claims to communicate transparently in all aspects when it deals with teams, clients and investors. However, the company’s website doesn’t list many details on the risk management framework for managing assets.

When asked about that on a recent “On The Brink” podcast, Zac Prince, BlockFi’s CEO, said the reason for that was nobody wants to read it. That’s not exactly true because customers with large account balances absolutely want to know whether their money is safe. Blind trust only goes so far.

Are Celsius And Gemini A Threat?

Within centralized finance (CeFi), BlockFi and Celsius have been the most widely used services for customers wanting to earn passive income on their crypto assets. Interestingly, Celsius Network was recently valued at $3.1 billion by Alpha Sigma Capital, which puts it at about the same valuation as BlockFi.

Although both platforms operate in much the same way, Celsius does offer several advantages. The first advantage is withdrawals are processed on the same day. The second advantage is while Celsius pays interest on 39 coins, BlockFi only does so on 10 coins. In addition, earlier this week, BlockFi announced it would decrease interest rates for BTC and ETH.

This will sting the most for crypto whales as large balances are most impacted. However, much like BlockFi, Celsius is not without risk. Last year, CoinDesk published an article detailing a few questionable practices in which the company engages such as giving out un-collateralized loans and re-hypothecating funds used as collateral.

Another important factor that customers may want to consider is that BlockFi pays out interest on a monthly basis, whereas Celsius pays out weekly. All else being equal, I’d much rather get paid four times a month and let that interest compound.

Until recently, BlockFi and Celsius were the main players in the CeFi lending space. But in early February, Gemini launched Gemini Earn, a program that will allow customers to earn up to 7.4% APY on their crypto assets. Although the program offers more coins than BlockFi, the rates are also significantly less.

Given the low rates, Gemini Earn probably isn’t a threat to steal business away from either BlockFi or Celsius at this time. However, it could mean that existing Gemini customers who were considering using other services may opt to keep their assets with Gemini.

Not Your Keys

As BlockFi continues to inch closer to a possible initial public offering, it’s important to get a handle on what the company offers, what the risks are and whether competitors are positioned to steal market share. Although most investors are eager to earn passive income on their crypto, they should fully understand the risks of keeping crypto assets on a centralized platform like BlockFi.

There is a common saying in crypto that investors might want to take to heart: “Not your keys, not your coins.”

Updated: 5-20-2021

BlockFi Mistakenly Credits Users With Too Much Bitcoin In Promo Payout

Just under 100 BlockFi users are reported to be affected, with some allegedly receiving as many as 700 Bitcoin due to a mishandled promotional offer.

Crypto promotional schemes are an old hat in the industry, with many businesses trying to secure customer loyalty through a range of perks and mini handouts.

For BlockFi, however, its latest promotional offer has gone topsy turvy, after the platform mistakenly paid out oversized rewards in Bitcoin (BTC). One BlockFi user allegedly received a staggering 701.4 BTC on Friday.

Under the terms of the original giveaway, BlockFi had offered Bitcoin rewards for clients trading a set volume in United States dollars between March 18 and 31. With rewards due to have been credited to accounts by May 31, BlockFi warned users already on Friday:

Some clients who participated in the March trading promotion may see an inaccurate bonus payment displayed in their transaction history. Our team is working on a fix and the proper amounts will be reflected shortly.

— BlockFi (@BlockFi) May 15, 2021

Just under 100 clients are thought to be affected, according to a BlockFi representative. Yet a small furor over the exchange’s allegedly threatening tone to clients who don’t comply instantly with its directives to return the funds has already erupted on social media.

One user has reportedly posted a photograph of an email allegedly from BlockFi notifying them that “failure to return the erroneously received assets by 5.00 PM EDT today (May 18th, 2021) may constitute a crime and will result in BlockFi taking legal action.” The company has also offered clients a $500 payout in Gemini Dollars (GUSD) as compensation for “any trouble this may have caused.”

Another Reddit user in the r/blockfi thread has alleged that “2 days after their blunder, I made a withdrawal of USDC which I had deposited a month earlier. Completely unrelated to their claim. Now they send me an email accusing me of withdrawing funds that aren’t mine saying it’s fraud and a crime they will act on if not returned in the next 2 hours.”

The user continued to criticize the platform, claiming that BlockFi “can’t even look through the records to verify what they are talking about. My account with them is only one month old.” “Great way to treat a new customer,” the user wrote.

In its official statement on Reddit, BlockFi tried to reassure customers by noting:

“The situation does not affect any of BlockFi’s ongoing operations and measures have been taken to ensure that an error like this will not be possible in the future. BlockFi’s latest publicly reported AUM is $15B as of Q1 2021. Client funds are not impacted and are safeguarded.”

In March of this year, BlockFi had raised $350 million in a series D funding round led by Bain Capital Ventures, Pomp Investments, Tiger Global and partners of DST Global. The company was valued at $3 billion.

With rumors and users’ allegations continuing to circulate online, BlockFi has yet to release an official statement clarifying what happened exactly. On Twitter, BlockFi CEO Zac Prince has recently posted that the amounts are, on the company’s account, not as high as some users have been alleging:

No- we mistakenly credited a bunch of BTC in accounts but only sent a couple hundred BTC to — Zac Prince (@BlockFiZac) May 19, 2021

Updated: 7-19-2021

BlockFI Ordered To Stop Onboarding New Jersey-Based Customers

BlockFi CEO Zack Prince rejects the New Jersey securities regulator’s claim that his firm has been offering unlicensed securities to the public.

The New Jersey Bureau of Securities had issued a cease and desist order to centralized crypto lending firm, BlockFi, preventing it from onboarding new interest account clients in the state.

The news was first broken by Forbes on July 19, with the outlet citing an undated, unpublished draft press release which revealed that the New Jersey Bureau of Securities was planning to issue a Summary Cease and Desist order to BlockFi.

The draft reportedly accuses BlockFi of offering unregistered securities to its customers. The document purported to quote Acting Attorney General Andrew J. Bruck as stating:

“Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws. No one gets a free pass simply because they’re operating in the fast-evolving cryptocurrency market.”

On July 20, Zack Prince, BlockFi’s CEO, confirmed the firm had received an order from the New Jersey Bureau of Securities ordering it to stop onboarding BlockFi Interest Account (BIA) clients residing in the state from July 22.

“BlockFi is engaged in an ongoing dialogue with regulators to help them understand our products, which we believe are lawful and appropriate for crypto market participants,” Prince said, adding:

“BIA is not a security, and we therefore disagree with the action by the New Jersey Bureau of Securities.”

The news comes roughly one month after Prince stated that impending regulations on crypto would be favourable for the industry.

The order comes as regulators around the world appear to be taking increasing action against unregulated sectors within the crypto industry.

Cointelegraph reported earlier today that United States Treasury Secretary Janet Yellen has urged lawmakers to quickly establish stablecoin regulations.

Binance has also come under fire for allegedly operating without proper licensing with the U.K Financial Conduct Authority accusing its subsidiary, Binance Markets Limited (BML), of providing unlicensed services to in the United Kingdom.

In China, regulators have also clamped down on local Bitcoin mining operations, which saw the Bitcoin network hash rate plummet by 54% since May 29.

Updated: 7-22-2021

Texas Alleges That BlockFi Is Offering Unregistered Securities

The state’s financial regulator join its counterparts in New Jersey and Alabama in taking action against the crypto lending platform.

The Texas State Securities Board has filed for a cease and desist order against crypto lending firm BlockFi for not offering a security licensed at the state or federal level.

According to a Thursday filing, the state regulator will be holding a hearing related to allegations BlockFi is illegally funding its crypto lending operations and proprietary trading through the sale of unregistered securities. Should the judge accept that the platform’s accounts earning interest on crypto represent unlicensed securities, BlockFi may be subject to a cease and desist order.

Should the judge grant the order at the Oct. 13 virtual hearing, BlockFi and its affiliates BlockFi Lending and BlockFi Trading would likely be required to stop offering BlockFi Interest Accounts in the state without registering with a local regulator or the U.S. Securities and Exchange Commission. The filing claims that BlockFi has more than $691 million assets under management from roughly 25,000 Texas residents as of June 9.

Texas’ Enforcement Division of the State Securities Board notified BlockFi on April 20 that it may not have been in compliance with the state’s Securities Act with its interest accounts. It alleged in today’s filing that the BlockFi Interest Accounts were in violation of Section 4.A of the Securities Act, saying:

“The mere fact an investment is tied to a cryptocurrency, blockchain technology, or some type of digital asset does not remove it from securities regulation if it constitutes an investment contract, note, evidence of indebtedness, or other type of security.”

BlockFi is already facing a cease and desist order from the New Jersey Bureau of Securities preventing it from onboarding new interest account clients.

Today the Alabama Securities Commission also issued an order giving the platform 28 days to show cause why it should not be subject to similar regulatory penalties for allegedly selling unregistered securities in Alabama​​. The lending platform has claimed the BlockFI Interest Account is not a security.

With the exception of BlockFi, Texas has generally been a state welcoming to crypto and blockchain firms. Governor Greg Abbott has spoken openly about his support of local laws concerning crypto and blockchain, with lawmakers passing a bill to recognize cryptocurrencies under commercial law in the state in June.

In addition, the state is already home to some major crypto mining firms including Riot Blockchain, Argo Blockchain, and Blockcap. Cointelegraph reported last month that miners displaced by regulatory crackdowns in China might be looking at Texas given the state’s cheap electrical costs.

Updated: 7-23-2021

BlockFi Is Pursuing Plans To Go Public – Even As Regulators Close In

The crypto lender is days away from closing a $500 million Series E, sources say. A timetable for a public listing is circulating among investors.

BlockFi aims to go public in 12 to 18 months, according to documents circulated to investors Wednesday amid growing regulatory scrutiny of the cryptocurrency lender.

The New Jersey-based company declined to comment on the current state of its plans.

BlockFi is set to close its Series E on July 27, the documents show. The round, as previously reported by The Block, amounts to $500 million, people familiar with the matter told CoinDesk. The investor documents reviewed by CoinDesk say BlockFi is expected to command a $4.75 billion post-money valuation.

BlockFi has been telegraphing its intention to go public for over a year, at one point even eyeing the second half of 2021. That timeline appears to have been delayed even before securities regulators in Texas, Alabama and New Jersey put BlockFi on notice.

A BlockFi stock listing would follow a raft of high-profile public-market crypto debuts, kicked off by Coinbase in April and followed by everyone from Circle to Block.one’s Bullish.

For now, BlockFi remains in startup mode. Its Series E is being led by Hedosophia and Daniel Loeb’s Third Point LLC, the documents said. Coinbase Ventures, Tiger Global and Bain Capital are also participating. The round was first reported in June by The Information.

Path Forward

BlockFi’s road to Wall Street grew complicated this week as state securities regulators in the U.S. began questioning the legality of the firm’s marqueé BlockFi Interest Account (BIA) offering.

That product, which promises to reward crypto depositors with high interest payouts, had amassed over $15 billion in assets by March 31, according to the Texas State Securities Board. In its filing, the Texas agency said it notified BlockFi of alleged violations on April 20, 2021.

Regulators in Texas, Alabama and New Jersey each alleged BIA is an unregistered security in violation of state laws. New Jersey is giving BlockFi until July 29 to explain itself. If the pair fail to come to a resolution, the state could halt BIA account onboarding.

CEO Zac Prince said Wednesday that BlockFi is talking things through with New Jersey. After Alabama issued its own order, his firm tweeted “we have active dialogues with regulators worldwide.” After CoinDesk’s reporting on the Texas filing, BlockFi tweeted, “we firmly believe that the BIA is lawful,” without referencing Lone Star State regulators.

“I think most states are looking at BlockFi,” Joseph P. Borg, director of the Alabama Securities Commission, told CoinDesk in a text message.

Updated: 7-25-2021

BlockFi Says Vermont Has Joined Ranks of States Probing the Crypto Lender

Alabama, Texas and New Jersey are investigating whether the firm’s marquee offering violates local securities laws.

Embattled cryptocurrency lender BlockFi is facing scrutiny from regulators in a fourth state, Vermont, over the legality of its interest account product.

According to BlockFi’s website, securities regulators in Vermont have issued an order on the matter. What that order said is not yet known.

But it comes as agencies in Alabama, Texas and New Jersey are investigating whether the firm’s marquee offering, the BlockFi Interest Account (BIA), violates local securities laws. New Jersey has given BlockFi until July 29 to explain itself before the state bars the firm from opening new accounts.

BlockFi has countered that it does not believe BIA is a security. It said it is in active discussions with regulators on the matter.

Neither BlockFi nor the Vermont Department of Financial Regulation responded to a request for comment from CoinDesk.

Updated: 9-2-2021

Crypto Accounts Yielding 7% Spur Scrutiny As States Warn Of Risk

State regulators say some interest-bearing crypto accounts with billions of dollars in deposits appear to be unregistered securities that aren’t disclosing their risks to investors.

The warnings are coming from states as varied as New Jersey — a longtime financial outpost — Alabama and Kentucky, which are among states that have already brought actions against BlockFi Lending LLC and its affiliates. The regulators’ focus makes the accounts the latest facet of the burgeoning crypto industry to attract government scrutiny.

These accounts offer yields on deposited Bitcoin and other cryptocurrencies that dwarf the returns from bank savings accounts. In some cases, the firms are offering annual interest rates of more than 7% on U.S. dollar “stablecoins,” which have a price fixed at $1. The national average interest rate for savings accounts is 0.06%, according to a survey by Bankrate.

Some regulators in interviews with Bloomberg said they are seeking information from other interest-paying crypto firms, which they did not name, and could possibly take actions similar to what they brought against BlockFi.

Some firms that pay interest on cryptocurrencies pitch themselves as an alternative to traditional financial products. Gemini Trust Co., founded by Cameron and Tyler Winklevoss, for example, says its Gemini Earn offers “up to 100x the average national interest rate,” comparing it to bank savings accounts whose deposits are insured by the federal government.

The firms that offer the accounts, including Gemini, and others such as Celsius Network LLC and BlockFi, acknowledge in their disclosures that their accounts carry no such insurance. Some regulators say crypto firms aren’t doing enough to warn of the risks that investors could lose their principal.

Some state regulators say the accounts look similar to securities that need to be registered at the state or federal level. Without federal insurance, investors could lose their money if the crypto firms can’t make good on those deposits.

Five state securities regulators in July brought actions against New Jersey-based BlockFi and its affiliates, ordering it to provide more information on its accounts or, in the New Jersey and Kentucky cases, to stop offering some products in the state.

New Jersey has delayed the implementation of its cease and desist order three times and on Wednesday announced that BlockFi would have until the end of September to comply.

BlockFi in a statement on Wednesday said it was talking to regulators and that it believed its interest accounts are “lawful and appropriate for crypto market participants. We remain steadfast in our commitment to fight for consumers’ rights to earn interest on their crypto assets.”

In the BlockFi case, “what we as regulators saw was a company promising to pay investors high rates of return in a largely unregulated environment,” said Joe Rotunda, director of the enforcement division at the Texas State Securities Board. “We were not convinced that a federal regulator in the near future was going to do anything to help protect the clients of these firms.
We felt we needed to act.”

Rotunda said his agency and those of other states are looking at firms with comprable business models with an eye toward tackling them with similar actions.

Crypto interest accounts have proliferated in the past year. BlockFi, one of the earliest entrants, says it has more than $10 billion in cryptocurrencies deposited earning an annual percentage yield of as much as 8%. Celsius says it has $20.5 billion in “community assets,” while Gemini launched such accounts in February and on Monday said they had $3 billion in deposits.

Federal regulators haven’t yet made substantial moves against the crypto savings accounts, but have set their sights on the stablecoin market.

Treasury Secretary Janet Yellen has expressed concerns that such coins could pose a risk to the financial system or be used to evade law enforcement. Her department planned to begin meeting with crypto firms and bank trade groups this week to talk about the concerns, according to a person familiar with the matter.

Products offered by firms such as BlockFi and Gemini are centralized at the companies. Regulators have also said they are concerned about yields offered through “decentralized finance,” or DeFi, where loans are brokered between crypto users without an intermediary.

For consumers, the accounts are enticing. At Gemini, for example, an investor can buy “Gemini dollars,” a stablecoin with a fixed $1 price, keep it on deposit and earn an annualized yield of 8.05%. The firm offers similarly high rates on dozens of other cryptocurrencies, including ones like Bitcoin, where the underlying price can rise or fall. The interest is paid in the form of the cryptocurrency that’s deposited.

Some regulators say they’re concerned that investors aren’t always told what their deposits are used for, in what circumstances they could lose some or all of their principal, and how the crypto firms are making money themselves. Many if not most of the products should be registered with securities regulators, they said.

“The point is we need to know what they’re doing with everybody’s Bitcoin and where the money’s going and to have some regulation that accounts for it,” said Joseph Borg, who heads Alabama’s securities regulator and says the state is looking into several other firms with similar activities.

“You know what happens if one of these things fails? People are going to be calling my office and asking, ‘Why didn’t you do something?’” Borg said.

The firms offering crypto interest accounts have varying levels of disclosures around how much risk their investors are taking. Gemini says it’s partnered with institutional crypto investment firm Genesis Global Trading Inc. to offer the accounts and that the deposits are being lent out to institutional investors.

Gemini itself takes a cut, sometimes taking almost half the interest its partners pay, according to its fee schedule. Celsius in its risk disclosure says the company “deploys crypto assets held by it in a variety of income generating activities, including lending them to third parties and transferring them to external platforms and systems.”

Both companies acknowledge in their disclosures that the accounts don’t carry any insurance similar to bank savings accounts and that investors could lose money.

A Celsius spokeswoman declined to comment.

“They use this terminology that suggests it’s like a bank deposit when it’s not that safe at all,” said Alexis Goldstein, a financial policy director for the Open Markets Institute who testified on crypto at the House Financial Services Committee in June.

Gemini Chief Operating Officer Noah Perlman said his firm discloses the accounts’ risks but that no investors have lost money. He said Gemini works with regulators in New York, where it’s based, before launching new products and said he believes Gemini’s interest accounts are substantially different than those of BlockFi.

Gemini doesn’t disclose exactly what the loans are used for, but its partner Genesis says on its website that it offers crypto loans that allow institutional investors to bet that crypto prices will fall, to take advantage of arbitrage opportunities or hedge their risk, among other strategies.

The most recent extension from New Jersey’s state securities regulator gives BlockFi until Sept. 30 to stop offering its accounts in the state or register them as securities. A spokesman for the New Jersey regulator declined to comment. Kentucky brought a similar action that went into effect immediately. Other states have given BlockFi time to show why they shouldn’t be subject to such a restriction.

Updated: 9-13-2021

BlockFi CEO Wants SEC To Weigh In On Crypto Lending

“We’re not going to decide what box crypto lending belongs in based on what New Jersey does or what Texas does,” Zac Prince said Monday.

One of the top crypto lending firms to face regulatory heat in the United States voiced optimism Monday that the industry’s hot sub-sector will survive – no matter how many state censures pile on.

BlockFi CEO Zac Prince, whose interest-bearing crypto account has come under scrutiny in at least five states, and whose company’s fate – repeatedly stayed – remains uncertain, said the lending industry will ultimately need word from the feds.

“We’re not going to decide what box crypto lending belongs in based on what New Jersey does or what Texas does or what any one other state does. It’s gonna come down to federal regulators like the SEC [Securities and Exchange Commission] or the OCC [Office of the Comptroller of the Currency], creating a path for this type of activity to happen,” he said at SkyBridge Capital’s SALT conference.

The controversy is a fight of definitions. BlockFi has insisted its interest account service is not a security, while the state securities regulators claim otherwise.

Coinbase is staring down a similar morass with the SEC, which has threatened to sue over a crypto lending product it has not yet launched.

Federal fights may yield a more enduring verdict for the U.S. lending industry, according to Prince. “There needs to be clarity at the national level,” he said.

Prince insisted that crypto loans are a service U.S. consumers want, and asserted that the country’s government will not allow it to fall behind.

Mainstream crypto loan services offer customers a 4%-6% yield on their deposits, amounts that trounce most banks’ sub 1% fare. More fringe decentralized finance (DeFi) protocols often promise returns far higher. That’s wowed crypto investors and spooked skeptics.

Prince said these crypto loans are “fundamentally” good for customers and the crypto market too. He said he believes America wants to lead the industry, even if it’s slow to come.

Still, BlockFi’s place in that industry is still being hashed out. New Jersey regulators have repeatedly delayed a “cease and desist” order that would shut down new account onboarding worldwide.

“I think we’re having very productive conversations right now,” said Prince, without speculating on where those conversations might lead.

Updated: 9-17-2021

States Act Against Celsius Network For Unregistered Products

States on Friday took action against Celsius Network, accusing the company, which purports to be one of the world’s largest cryptocurrency lenders, of offering residents unregistered securities.

Texas filed a notice seeking a hearing to determine whether to issue a cease and desist order against the company. The action means Celsius will have to show why it shouldn’t be ordered to stop offering its products to state residents. The hearing is scheduled for February 14.

Later on Friday, New Jersey ordered Celsius to stop offering some of its products, which it also described as unregistered securities, effective November 1. Alabama issued an order, which appeared on its securities agency’s website on Friday but was dated Thursday, demanding that Celsius show why it shouldn’t be barred from offering its products within 28 days.

“We are disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law,” said a spokesperson, noting that the company will keep working with regulators to comply with the law. “As of now, there are no changes in our services to any of our clients. We will keep our community updated with any development.”

The moves against Celsius come on the heels of similar actions against New Jersey-based competitor BlockFi Inc. taken by states including New Jersey, Texas and others in July, and in the week after Coinbase Global Inc. disclosed that the Securities and Exchange Commission had threatened to sue it if it offered its own yield product to depositors.

Celsius had more than $24 billion in “community assets” at the beginning of September, the company said, which would make it one of the world’s largest crypto lenders and interest-account providers, if not the largest.

The company offers customers a yield of nearly 9% for deposits of U.S.-dollar stablecoins, such as Tether and USD Coin, as much as 6.2% for Bitcoin, and varying rates of interest on other cryptocurrencies.

Celsius and other companies that offer crypto interest accounts have said that they’re able to pay such high yields in part because they lend the deposits out at even higher rates to institutional investors, who need to borrow crypto to execute their own trades such as to short the market or engage in arbitrage.

But federal and state securities agencies have said the companies are likely running afoul of the law, and that the products, which sometimes are marketed as an alternative to bank savings accounts, should be registered with their agencies. Such registrations would entail more disclosures to investors and agency oversight.

3 States: Alabama Securities Commission Also Claims Celsius Violated Securities Laws

Texas and New Jersey both announced they believed Celsius violated state securities laws on Friday.

he Alabama Securities Commission has ordered crypto lender Celsius to explain how it is not violating state securities laws. It has four weeks to comply.

In an order dated Sept. 16, the state regulator said it believes Celsius violated state laws through its “Earn Rewards” program.

Texas and New Jersey state regulators announced similar findings on Friday, with New Jersey filing a cease-and-desist and Texas announcing it would hold a hearing in February to determine if a cease-and-desist should be ordered.

Celsius has 28 days to respond to the Alabama regulator and show cause why the regulator should not impose a cease-and-desist order. If the company does not respond, the regulator will assume Celsius is waiving its right to a hearing and immediately move to impose sanctions.

A Celsius Spokesperson Told CoinDesk Via Email:

“We are disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law. We always have, and will continue to, work with regulators in the U.S. and globally to operate in full compliance with the law.

Given our commitment to regulatory adherence, we look forward to addressing this matter quickly. As of now, there are no changes in our services to any of our clients. We will keep our community updated with any development.”

Earlier Friday, CEO Alex Mashinsky said in an ask-me-anything that he looked forward to explaining the company’s business to regulators.

“They should be cheering for us as we’re effectively helping redistribute wealth and provide opportunity for everybody, not just the 1%,” he said on Friday.

Celsius CEO Eager To ‘Educate’ Securities Regulators In Brewing Legal Fight

In an AMA Friday, Celsius CEO Alex Mashinsky said the crypto lender was ready to work with regulators.

Celsius CEO Alex Mashinsky brushed aside his crypto lending firm’s brewing standoff with state watchdogs Friday, telling viewers of a live-streamed ask-me-anything (AMA) that he welcomes the chance to educate U.S. securities regulators.

“Any regulator who wants to learn more about what we do: we collaborate, cooperate and we don’t see any issues with that – the opposite,” he said in response to Friday’s allegations of securities violations from the Texas State Securities Board (TSSB).

He seemed to imply more state-level actions were inbound: “Celsius also received several requests for information, like from the state of Texas.”

Minutes later, New Jersey regulators ordered Celsius to cease offering new interest-earning crypto accounts by Nov. 1. It alleged that unregistered securities sales had generated $14 billion for Celsius.

The fracas was reminiscent of July’s state-led barrage against BlockFi. Then, five U.S. states alleged in quick succession that Celsius’ buttoned-up competitor was violating local securities laws. Interest-bearing crypto accounts were the target there, too.

Mashinsky, who spoke only of the Texas action Friday, seemed unfazed by the coming torrent. He framed his company’s lending offering, which promises returns far greater than in traditional banking, as equivalent to Robin Hood of yore.

“They should be cheering for us as we’re effectively helping redistribute wealth and provide opportunity for everybody, not just the 1%,” he said after noting that “regulators are here to protect consumers.”

Mashinsky welcomed the chance to effectively educate the regulators who he said might not fully understand Celsius’ product – or what it does. He made the coming fights sound like more of a bump in the road than an existential threat that could shutter billions of dollars in inflows.

But that’s exactly what the fight appears to be: New Jersey is giving Celsius just over a month before a cease-and-desist order kicks in. The action would stifle new account creation and cut off new deposits from existing accounts.

“We are committed to educate and protect investors from companies that attempt to bypass our laws,” New Jersey Bureau of Securities chief Christopher W. Gerold said in a press statement, adding:

“The Bureau’s action is intended to protect the public and put on notice those trying to circumvent regulated activities.”

Texas was more conciliatory Friday. TSSB Enforcement Director Joe Rotunda told CoinDesk he was not out to get Celsius so much as bring it in line with the law.

“I am not trying to put the company out of business or shutter its doors,” Rotunda said via email. “Instead, I recognize digital assets and blockchain technology are paving the way for exciting new opportunities and new financial services. We are simply trying to get Celsius in compliance with the law so it can continue to operate legally and legitimately while protecting its clients and their assets.”

If the AMA was any indication, Celsius is going full steam ahead. Mashinsky hailed Celsius’ growth and dangled a cash incentive to viewers who helped him bring more new clients on board.

“We just shower money on all you guys,” he said, contrasting his $50 referral bonus with the star-struck marketing campaigns of FTX and BlockFi.

“Why?” he said. “I’d rather you have it than Tom Brady.”

Texas And New Jersey Regulators Go After Celsius Network

“Companies dealing in cryptocurrencies are not immune from oversight,” said New Jersey’s acting attorney general Andrew Bruck.

The Texas State Securities Board has filed for a hearing with the potential to impose a cease and desist order against crypto lending firm Celsius Network for not offering securities licensed at the state or federal level, while the New Jersey Bureau of Securities has ordered the platform to stop offering and selling interest-earning cryptocurrency products.

According to a Sept. 17 filing, the Texas regulator will be holding a hearing related to allegations that Celsius Network is offering and selling securities in Texas that are not registered or permitted in addition to not registering as a dealer under the state’s Securities Act.

Should the judge accept that the platform’s offerings represented unlicensed securities, Celsius Network may be subject to a cease and desist order.

On the same day, the New Jersey Bureau of Securities announced that it had issued a cease and desist order against Celsius for allegedly “funding its cryptocurrency lending operations and proprietary trading at least in part through the sale of unregistered securities in violation of the New Jersey Securities Law.” According to the state regulator, the platform raised roughly $14 billion from those sales.

“Financial companies operating in the cryptocurrency marketplace are on notice,” said New Jersey’s acting attorney general Andrew Bruck. “If you sell securities in New Jersey, you need to comply with New Jersey’s investor-protection laws. Companies dealing in cryptocurrencies are not immune from oversight.”

The hearing in Texas will be held either online or in-person on Feb. 14. Should the judge grant a cease and desist order, Celsius Network and its affiliates Celsius Network Limited, Celsius US Holding, and Celsius Lending would likely be required to stop offering crypto services in Texas without registering with the state’s securities board or the United States Securities and Exchange Commission.

“We are disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law,” a Celsius spokesperson told Cointelegraph. “We always have, and will continue to, work with regulators in the U.S. and globally to operate in full compliance with the law.”

According to the Texas filing, Celsius held more than $24 billion in digital assets as of Sept. 3, making the company one of the largest in decentralized finance. Its holdings have grown by more than 2,300% since June 2020, when it reported $1 billion in digital assets.

In Texas, Celsius Network has more than $344 million in assets under management from more than 9,000 residents and local businesses as of June 9.

Texas’ Enforcement Division of the State Securities Board notified Celsius on May 14 that it may not have been in compliance with the state’s Securities Act.

In a Sept. 17 filing, it alleged that the platform’s Earn Interest-Bearing Accounts were in violation of Section 4.A of the Securities Act, saying they constituted “investment contracts, notes, or evidences of indebtedness regulated as securities.”

The allegations against Celsius are similar to those both state regulators — as well as their peer in Alabama — levied against crypto lending platform BlockFi in July.

The company is scheduled to appear at a virtual hearing in Texas on Oct. 13 to discuss imposing a cease and desist order for allegedly illegally funding its crypto lending operations and proprietary trading through the sale of unregistered securities. In New Jersey, the cease and desist order against BlockFi prevented the platform from onboarding new interest account clients in the state.

Celsius users seemed to express their disappointment with regulators coming down on the lending platform, but said the move may be due to them attempting to lay down clearer rules for companies moving into the space.

“[Celsius CEO] Alex Mashinsky has time and time and time again cited that it was they who came up with the concept of paying yield on crypto and as a result have undoubtedly poured over the many ways in which they can provide for their customers,” said Redditor MaintenanceGold6992. “This to me sounds like a whole lot of Guff, most likely to make it look like States/Govt aren’t just gunning for Coinbase/BlockFi. Celsius will weather the storm.”

Updated: 9-20-2021

Nexo Co-Founder Details Crypto Lender’s Plan To Stay Out Of Regulators’ Crosshairs

Nexo wants to avoid the fate of BlockFi and Celsius, which are under investigation by U.S. state regulators.

The co-founder and managing partner of cryptocurrency lender Nexo has a plan for when securities regulators come knocking on the lender’s door.

Antoni Trenchev said that while U.S. regulators have pressured U.S.-based lending platforms first (BlockFi and Celsius), any company with a presence in the U.S. will have to “cross the same bridge” eventually, including London-based Nexo. Trenchev did not respond to a question about whether or not regulators have already approached Nexo.

“We’re following the situations very closely,” Trenchev said. “When I say we, I mean both the legal team internally at Nexo and also the law firms we retain in the United States.”

First, Nexo is pursuing an acquisition of a Securities and Exchange Commission (SEC) licensed broker dealer through which it could offer “a modified version” of Nexo products. Second, the lender is talking with nationally chartered banks that might be willing to partner with Nexo and let Nexo offer its products under a bank charter. Third, Nexo would apply for an exemption to offer securities to non-accredited investors.

“We haven’t quite decided on the particular variations of the exemptions and exactly how we’re going to structure this,” Trenchev said.

Celsius, BlockFi, Nexo and Ledn offer both a lending product and a depository yield-earning product that is powered by the interest rates that each firm charges on the lending side of the house. Ledn did not respond to a request for comment.

Crypto lender Unchained Capital, for instance, told CoinDesk that it does not offer depository accounts and therefore no yield on deposits. Coinbase, the largest U.S. exchange, said on Friday that it no longer plans to offer a lending product that would have powered a savings account for customers with a 4% annual percentage yield.

Updated: 9-23-2021

Kentucky Issues Cease-and-Desist Order Against Celsius Network

The state is the fourth to take legal action against the crypto lender.

The Celsius Network has drawn the ire of Kentucky’s securities regulator in the latest legal move by a U.S. state against the crypto startup and its lending products.

In a filing Thursday, the state’s Division of Securities, part of the Kentucky Department of Financial Institutions, issued a cease-and-desist order against the startup over its “Earn Interest Accounts.”

The regulator took issue with the startup’s language regarding interest earned on certain crypto accounts that Celsius dubs “rewards” or a “financing fee.”

The regulator alleges that Celsius’ interest-bearing accounts violate Kentucky’s securities law and fail to disclose to customers what occurs with their deposits and whether customers are protected under the state’s securities protections.

Celsius may request an emergency hearing to challenge the decision or may appeal in court.

Kentucky’s filing is yet another blow to the embattled startup that has already been challenged by Alabama, New Jersey and Texas.

Last week, Celsius CEO Alex Mashinsky dismissed his crypto lending firm’s standoff with state regulators, telling an audience in a livestreamed address that he welcomes the chance to “educate” the regulators on how his business functions.

Updated: 9-27-2021

What’s Crypto Lending, And How Did BlockFi Promise To Change It?

Investors frustrated with minuscule yields from bank savings accounts have found a would-be savior: so-called crypto lending accounts that can pay interest rates of 9% or higher. Upstart crypto firms like Celsius Network and BlockFi Inc. think this kind of account could be the killer app that brings a whole new cohort of investors into cryptocurrencies.

But the accounts have also drawn criticism from traditional financial firms, who say they’re riskier than they appear, and from some regulators. BlockFi’s decision to register its offerings with the U.S. Securities and Exchange Commission as part of a $100 million settlement could create pressure for the rest of the field to follow suit.

1. What Is Crypto Lending?

At first blush, crypto lending accounts look a lot like savings accounts offered by banks, but with cryptocurrencies instead of traditional money. An investor opens an account, deposits cryptocurrency and earns interest. Many deposits come in the form of Bitcoin, while other investors use stablecoins, tokens whose price is often pegged at $1; others use lesser-known cryptocurrencies that have wide price fluctuations. The firms typically pay interest in the same currencies that are deposited. Some accounts have rates that change daily, while others get a fixed rate while the money is locked up for a fixed time, as with a certificate of deposit.

2. How Can This Offer Such Big Returns?

The firms that offer the accounts say that they’re able to lend customers’ deposits to institutional investors at even higher rates. The institutions sometimes need to borrow crypto to execute their own trades, such as betting that the price of crypto will fall or to take advantage of price differences in other financial instruments. But regulators have said they believe some crypto lending firms are using the money for other business activities. The bottom line is that there aren’t uniform rules for firms to disclose what exactly the deposits can and can’t be used for.

3. How Does It Compare With Regular Bank Products?

Crypto lending accounts typically carry yields that dwarf those of traditional bank accounts. While the average bank savings rate was 0.06% in early February 2022, for example, Celsius Network says it can pay 10.73% on deposits of some U.S. dollar-backed stablecoins.

4. How Big Is Crypto Lending?

The business of offering the accounts is big and has been growing fast. Celsius, one of the largest such companies, says it has more than $20 billion worth of deposits. BlockFi Inc. says it has more than $10 billion. Gemini Trust Co. began offering accounts in February 2021 and said that in August it had more than $3 billion in deposits.

5. How Does It Fit Into The Crypto World?

While Bitcoin trading is seen as volatile and risky, companies offering interest accounts say they’re a steadier source of returns for investors. Celsius and BlockFi, as well as competitors like Gemini, deal directly with their customers and pay them interest, which puts them in the category of “centralized finance.” Some investors have earned similar yields by lending their deposits through “decentralized finance,” or DeFi, protocols, where computer code, rather than an intermediary, manages the interest payments. Lending out crypto to earn interest via DeFi is sometimes called yield farming.

6. What Kind Of Conflict Has There Been With Regulators?

Few of the firms offering the accounts first sought approvals from federal regulators, and that led to a heavy backlash. In July 2021, securities regulators for Alabama, Texas, New Jersey, Kentucky and Vermont brought actions against BlockFi alleging that the company was offering unregistered securities. Several of the same states brought actions against Celsius Network. Coinbase Global Inc. planned to offer similar accounts but dropped that proposal after the SEC told the company it might sue.

7. What Did Blockfi Agree To?

It announced that it would seek SEC approval for accounts that pay clients high yields for lending out their crypto as part of a record $100 million settlement with federal and state securities watchdogs. The plan would give the Jersey City, New Jersey-based firm the first SEC sanctioned product of its kind. As part of the agreement announced by the SEC, current BlockFi customers can continue to earn interest on their existing investments, but the company must not sell the products to new American clients. The company has 60 days to seek to comply with SEC regulations. It’s also seeking to register a new crypto-lending product that will satisfy the agency’s rules.

8. How Is Crypto Lending Different From Staking?

Staking is a process in which holders of a cryptocurrency let their tokens be used to help order transactions on the blockchain, or digital ledger, that is used by that coin. Staking has been booming in part because of the incentive-based aspect of crypto, where various new coins and blockchains are competing for so-called validators, sometimes by promising potentially stratospheric annual returns in the form of new coins. But staking differs from lending in that stakers are temporarily handing over their tokens as part of a communal effort to maintain a currency’s functioning, rather than to just to earn a return.

9. What Are The Dangers In Lending For Consumers?

Regulators and investor advocates are most worried that consumers don’t understand that they’re taking on much more risk than they would in a bank savings account. Because the crypto accounts aren’t insured, customers can lose their deposits if a firm goes bust, is hacked, or otherwise loses its customers’ funds.

10. What Does This Conflict Mean For The Broader Crypto World?

Regulators appear to believe the crypto lending accounts are some of the lowest hanging fruit in their bid to bring some law and order to the crypto world — after all, with firms like Celsius and BlockFi there’s a clear entity to sue, rather than just some computer code as in some DeFi transactions. The moves against the firms could be just the start of a broader crackdown. In years past, the SEC more or less put an end to a boom in what were known as initial coin offerings, or ICOs, by entrepreneurs hoping to launch the next Bitcoin, when it ruled that most of the tokens counted as securities — shares of endeavors where investors pool funds and get returns that depend on the actions of others.

11. What Happens If Crypto Accounts Are Deemed Securities?

That designation opens the firms up to an entirely new regime of registrations and disclosure requirements. That could bring more investor protection to the space, but it would also probably mean higher costs for the crypto firms, and possibly the end of such outsize returns for investors. Leaders of crypto lending firms dispute that their products are securities and say that federal agencies need to give them guidelines on how to stay within the bounds of the law rather than bring lawsuits, as the SEC threatened to do against Coinbase. BlockFi’s settlement and pledge to register with the SEC, though, could create a pattern other firms could follow.

Updated: 10-5-2021

Top 6 Crypto Passive Income Generators For 2021

Earning interest on your idle crypto assets is a great way of making your money work for you. Here are six of the best ways to do it in 2021.

Passive income is money generated from ventures in which an individual is not actively involved. For the most part, all you need to do is invest your money or digital assets in a particular crypto investment strategy or platform and watch it generate profit. In some cases, the earnings are fixed and predictable. In others, several factors beyond your control may come into play.

A typical way many try to make a return in crypto with little to no involvement is through buying and holding crypto – also known in the industry as “HODLing.” This means an investor is prepared to purchase a digital asset with the mindset that its price will hopefully rise significantly sometime in the future.

Such investors are ready to go the distance as this long-term strategy might require them to hold their positions anywhere between six months to five years. Through the duration of this investment, an investor does not have to be proactive in the crypto market. They only need to buy the digital asset and store it in a secure wallet – preferably a non-custodial wallet.

A wallet is a device or app where you can store a special key (private key) that gives access to your cryptocurrencies. The non-custodial variants let you store the private key in your personal devices, including a computer, mobile phone or purpose-built wallet devices.

With this, you have complete control over your private keys and, ultimately, your digital assets. By comparison, with a custodial wallet, a third party controls your private keys.

However, simply buying and holding a crypto asset for any length of time does not guarantee you will make a profit. In fact, it’s very possible you could lose money. As such, exclusively HODLing crypto cannot be considered a truly passive income generator.

Ways To Earn Passive Crypto Income

Proof-Of-Stake (PoS) Staking

Proof-of-stake is a type of blockchain consensus mechanism designed to allow distributed network participants to reach an agreement on new data entering the blockchain. Note that blockchains enable open and decentralized networks where participants contribute to governance and processes involved in validating transactions.

This is critical because such a community-focused approach eliminates the need for central authorities like banks. In most cases, blockchains randomly pick participants, elevate them to the status of validators and reward them for their efforts.

The systems used to pick validators vary from blockchain to blockchain. Some blockchain networks require users to deposit or commit their financial resources to the network. Here, the blockchain selects validators from a pool of users that have staked a specified sum of its native digital asset.

In return, validators earn interest on the staked funds for contributing to the validity of the network. This validation mechanism is what is called proof-of-stake. It provides an opportunity for holders (those in it for the long haul) to generate passive income.

Knowing fully well that transaction validation might be technically tasking, you could opt for PoS blockchains that allow you to delegate your stakes to other participants who are ready to take up the technical requirements of staking. Understandably, the reward distributed to validators is slightly higher than that of a delegator. Some of the PoS blockchains you could consider are:

* Cardano
* Ethereum 2.0
* Polkadot
* Solana

For even more convenience, you could adopt one of the several staking services available today. With these platforms, you can deposit a fraction of the number of digital assets required by the blockchain.

For example, you normally have to deposit a minimum of 32 ETH on the Ethereum 2.0 blockchain to become a validator. With a third-party Ethereum staking service, however, you could deposit as little as 5 ETH to start accruing interest.

Interest-Bearing Digital Asset Accounts

Holders can take advantage of interest-bearing crypto accounts to earn fixed interest on their idle digital assets. Think of this as putting money in an interest-earning bank account. The only difference is that this service supports only crypto deposits.

Instead of holding digital assets in your wallets, you can deposit them in these accounts and receive daily, weekly, monthly or yearly earnings, depending on the predefined interest rates. Crypto service providers that offer such products include:

* Nexo
* Celsius Network
* SwissBorg
* BlockFi

Lending

Lending has become one of the most popular crypto services in both the centralized and decentralized segments of the crypto industry. As an investor, you can lend your digital assets to borrowers for a chance to earn interest. There are four main lending strategies you could opt for:

Peer-to-peer lending: Platforms that provide such services enable systems that allow users to set their terms, decide the amount they want to lend and the interest they intend to generate on loans. The platform matches lenders with borrowers, similar to how P2P (peer-to-peer) trading platforms match buyers and sellers.

Such lending systems provide users with a certain degree of control when it comes to crypto lending. However, you have to deposit your digital asset on the lending platform’s custodial wallet beforehand.

Centralized lending: In this strategy, you rely solely on the lending infrastructure of third parties. Here, the interest rates are fixed, so are the lock-up periods. Like P2P lending, you have to transfer your crypto to the lending platform to start earning interest.

Decentralized or DeFi lending: This strategy allows users to execute lending services directly on the blockchain. Unlike the P2P and centralized lending strategies, there are no intermediaries involved in DeFi lending.

Instead, lenders and borrowers interact with programmable and self-executing contracts (also known as smart contracts), which autonomously and periodically set interest rates.

Margin lending: Lastly, you could lend your crypto assets to traders interested in using borrowed funds to trade. These traders amplify their trading position with borrowed funds and repay the loans with interest. In this case, crypto exchanges do most of the work on your behalf. All you need to do is make your digital asset available.

Cloud Mining

Unlike the proof-of-stake mechanism explained earlier, some blockchains, including Bitcoin, opt for a more computer-intensive approach where users need to prove the eligibility of their claim to become validators (more commonly called miners) by competing against each other to solve highly complex mathematical puzzles. This process is called crypto mining.

Due to the competitiveness of this consensus mechanism, miners have to invest in powerful computers and pay exorbitant electricity bills.

Undoubtedly, this venture is time-consuming and technical. And so, investors often opt for an alternate approach called cloud mining. With this, you can pay third parties to take up the technical aspect of crypto mining on your behalf.

In essence, you pay a platform that offers such services a lump sum to rent or buy mining machines from their mining facilities. After this first payment, you might have to pay a daily maintenance fee so that the cloud mining service provider can help you manage your mining rigs.

As exciting as this sounds, it comes with lots of risks. Cloud mining has been a subject of controversy ever since it became widely adopted. There have been several cases of scams due to the remote nature of this mining venture. Therefore, you should carry out due diligence before opting for this option.

Dividend-Earning Tokens

Certain tokens offer holders a fraction of the revenue of the company that issued them. All you need to do is hold the token, and you are automatically eligible to receive a certain percentage of the company’s revenue. The number of tokens you own determines the share of the revenue you would receive.

An example of this is KuCoin Shares (KCS), where holders receive a daily share of transaction fees accrued by the KuCoin blockchain asset exchange. The amount received is proportional to the amount of KCS tokens each holder stakes.

Yield Farming

Yield farming is another decentralized, or DeFi, method of earning passive crypto income. This is made possible by the dynamic operations of decentralized exchanges, which are basically trading platforms where users rely on the combination of smart contracts (programmable and self-executing computer contracts) and investors for the liquidity necessary to execute trades.

Here, users do not trade against brokers or other traders. Instead, they trade against funds deposited by investors – known as liquidity providers – into special smart contracts known as liquidity pools. In turn, liquidity providers receive a proportional amount of trading fees from the pool.

To start earning passive income via this system you first have to take up the role of a liquidity provider (LP) on a DeFi exchange such as Uniswap, Aave or PancakeSwap.

To start earning these fees, you have to deposit a specified ratio of two or more digital assets into a liquidity pool.

* For example, in order to provide liquidity to an ETH/USDT pool, you will need to deposit both ETH and USDT tokens into it.

Once you deposit liquidity, the decentralized exchange will transfer LP tokens representing your share of the total funds locked in the liquidity pool. You can then stake these LP tokens using supported decentralized lending platforms and earn additional interest. This strategy allows you to earn two separate interest rates from a single deposit.

The crypto passive income opportunities listed in this guide are just some of the many ways you can make extra profit with your idle digital assets. Note that none of these opportunities are risk free. Hence, it is advisable to carry out your own research, seek professional guidance from a qualified financial advisor and determine what best suits your investment goals.

Updated: 10-12-2021

Crypto Lender Celsius Network Raises $400M In Bid To Reassure Regulators

The investment gives the company a $3 billion valuation.

Cryptocurrency lender Celsius Network has raised $400 million in equity funding, the company said.

* The investment will help reassure regulators of the credibility of Celsius Network’s business, CEO Alex Mashinsky told the Financial Times, which reported the investment earlier Tuesday.

* “It’s not the $400 million. It’s the credibility that comes with the people who wrote those cheques.”

* Last year, the company raised $30 million in an equity round led by Tether at a pre-money valuation of $120 million.

* The crypto lender has been subject to multiple moves by state regulators in the U.S, in response to its lending products.

* Last month, Celsius Network received a cease-and-desist order from Kentucky’s securities regulator over interest earned on certain crypto accounts. The regulator says the accounts violate securities laws and fail to disclose to customers what happens to their deposits and whether they are protected.

* The action followed challenges to Celsius by the regulators of Alabama, New Jersey and Texas.

Updated: 10-19-2021

Crypto Lender Nexo Confirms NYAG Order, Calls It A ‘Mix Up’

Nexo Financial confirms to be one of the two crypto lending firms to receive the cease and desist order from Attorney General James’ office.

Cryptocurrency lending firm Nexo Financial denies the allegations of offering unregistered services to New Yorkers put forth by Attorney General Letitia James.

Attorney General James directed two unnamed crypto lending companies to cease operations on Monday, citing failure to register the business in New York and performing unlawful activities.

Crypto lender Nexo is revealed to be one of the two companies to receive the cease and desist order from the Office of the Attorney General. Denying its involvement in unlawful operations, a Nexo spokesperson said:

“Nexo is not offering its Earn Product and Exchange in New York, so it makes little sense to be receiving a cease and desist order for something we are not offering in New York anyway.”

According to Nexo, the allegations of operating an unregistered business in New York “appears to be a case of mixing up the recipients of the letter.” The company also confirmed the use of IP-based geoblocking on its platform that prevents New Yorkers from participating in locally unregistered services:

“Still, we will engage with the NY AG and seek clarity. Our company retains top-tier legal counsel both from US-based law firms and our in-house legal team.”

In addition, the company has also highlighted that the Nexo Terms and Conditions explicitly state, “We do not offer our Earn product and Exchange in New York.”

To further protect New Yorkers from significant undisclosed risks, the New York State Office of the Attorney General has parallelly directed three more crypto platforms to provide information about their activities and products.

The order to shut down operations is backed by the Martin Act, which requires businesses to register before offering or selling securities or commodities in New York. “My office is responsible for ensuring industry players do not take advantage of unsuspecting investors,” said James.

A group of local New York businesses co-signed a letter asking New York State Governor Kathy Hochul to deny permits for repurposing the city’s defunct fossil-fuel power plants for crypto mining.

The proposal demands an assessment of the environmental impact of restarting the Greenidge Generating Station and the Fortistar North Tonawanda plants, which were shut down to control New York’s greenhouse gas emissions.

Celsius Responds To NYAG Crackdown On Crypto Lending Platforms

“If any regulatory or technical changes are required in a specific jurisdiction, Celsius will provide clear and timely communication as needed,” said the firm.

Crypto lending firm Celsius Network has confirmed it is one of three platforms requested to provide information to the New York Attorney General’s office.

In a Tuesday blog post, Celsius said it was not one of the two unnamed crypto lending platforms that New York Attorney General Letitia James ordered to “cease any and all such activity” around selling or offering cryptocurrencies. Rather, Celsius said it was “working on providing regulators in New York” with information regarding its business.

“If any regulatory or technical changes are required in a specific jurisdiction, Celsius will provide clear and timely communication as needed,” said the lending platform. “We know that the only way to thrive and ensure our long-term growth is through clear regulatory guidance. We anticipate and plan for these kinds of routine checks and balances.”

The statement from Celsius comes following the NYAG’s office issuing a non-legally binding request for information from three unnamed crypto lending platforms operating in the state — although the AG did hint at a possible subpoena. James asked the businesses to provide details on their lending products, policies, procedures, clients in New York and other relevant information.

While Celsius has not received a cease and desist order from New York state, the platform is the target of regulators in Texas and New Jersey. On Sept. 17, the Texas State Securities Board filed for a hearing with the potential to impose a cease and desist order against crypto Celsius for allegedly not offering securities licensed at the state or federal level.

The same day, the New Jersey Bureau of Securities ordered the lending platform to stop offering and selling interest-earning cryptocurrency products.

A Celsius spokesperson said at the time that it “wholeheartedly disagreed” with the allegations and was working with United States regulators “to operate in full compliance with the law.”

According to the platform’s response to the NYAG’s request for information, Celsius is “having a very open and productive dialogue with regulators around the world.”

Of the other four firms targeted in the NYAG crackdown, Nexo Financial confirmed on Monday it received one of the two cease and desist orders. However, according to a Nexo spokesperson, the company does not offer its Earn Product and Exchange in New York state.

“It makes little sense to be receiving a cease and desist order for something we are not offering in New York anyway,” said the spokesperson. “We will engage with the NYAG as this is a clear case of mixing up the recipients of the letter.”

The other three companies that received notices from the NYAG remain unidentified. Under New York law, all crypto brokers, dealers, salespersons and investment advisers must register with the NYAG’s Investor Protection Bureau if they are doing business in the state. Those without an exemption who fail to do so will be subject to civil and criminal penalties.

Updated: 10-25-2021

BlockFi to Develop Crypto Asset Management Products With Neuberger Berman

The new products will be housed in a separate entity called BlockFi nb.

Crypto lender BlockFi has partnered with private investment manager Neuberger Berman to develop new crypto asset management products.

* The new products will be housed in a separate entity called BlockFi nb, according to an announcement Monday.

* BlockFi nb said exchange-traded funds (ETFs) are likely to be among the products it develops.

* “We think this combination will help us to improve on products currently in the market so that we can give investors cost-effective and convenient access to the performance of digital assets from their brokerage accounts,” Greg Collett, president of the new entity, said.

* Neuberger Berman – a $400 billion asset manager – recently tweaked the strategy of its $164 million commodities fund, allowing up to 5% of its assets to be held in bitcoin futures and funds.

Updated: 11-9-2021

Crypto Lender Nexo Makes Strategic Investment In SEC-Licensed Broker-Dealer

The firm’s investment into Texture Capital may be aimed at limiting regulatory scrutiny when it seeks to expand in the U.S.

Cryptocurrency lender Nexo said it made a strategic investment in U.S.-regulated broker-dealer Texture Capital without specifying how much money is involved.

* The firm will be hoping to realize its previously stated aim of escaping regulatory scrutiny as it seeks to expand in the U.S.

* Nexo declined to say how much it invested in Texture Capital.

* Nexo is aiming to escape the fate of fellow crypto lenders BlockFi and Celsius, whose products were deemed to be unregistered securities by numerous regulatory bodies.

* Co-founder Antoni Trenchev detailed in September how Nexo’s plan was to acquire a broker-dealer licensed by the U.S. Securities and Exchange Commission to use as a conduit for “modified versions” of its crypto lending products.

* Texture Capital is SEC licensed for issuance and trading of digital asset securities as well as being registered in all 50 U.S. states, Nexo said Tuesday. It is also a member of the Financial Industry Regulatory Authority, a self-regulatory organization.

* Nexo’s investment in Texture Capital forms part of the broker-dealer’s seed funding round.

Updated: 11-17-2021

BlockFi Faces SEC Scrutiny Over High-Yield Crypto Accounts

* U.S. Regulator Examining Whether Lending Product Is A Security
* Fast-growing Firm Already Responding To State-Level Inquires

BlockFi Inc. is being scrutinized by the U.S. Securities and Exchange Commission over its popular product that pays customers high interest rates for lending out their digital tokens, a development that significantly ratchets up the fast-growing crypto firm’s legal woes.

The SEC review focuses on whether the BlockFi accounts are akin to securities that should be registered with the regulator, according to a person with knowledge of the matter. The Jersey City, New Jersey-based firm touts annual yields as high as 9.5% on its website — a figure that dwarfs the 0.06% average interest rate for bank savings accounts. States including New Jersey and Texas have already taken action against BlockFi, questioning whether it’s marketing illicit financial products that lack bedrock consumer protections.

BlockFi and other firms are able to pay high interest rates because they can charge institutional investors that want access to coins even more. The market is one of the hottest corners of crypto, with companies saying they’ve collected more than $40 billion in deposits.

Companies such as BlockFi aren’t the only avenues through which crypto investors have earned outsize yields. They’ve also plowed money into “decentralized finance,” or DeFi, platforms and “staked” coins to earn crypto in exchange for helping to maintain a coin’s network.

BlockFi, a private company with more than 500,000 retail accounts, was recently valued at more than $4 billion. Backed by Wall Street titans including Bain Capital and Tiger Global Management, the firm offers a suite of financial services to crypto investors, including trading accounts and loans that allow customers to borrow money against their virtual tokens. The SEC hasn’t accused BlockFi of any wrongdoing and not all agency investigations lead to enforcement actions.

Spokespeople for BlockFi and the SEC declined to comment.

SEC Chair Gary Gensler has loudly asserted in a series of speeches that he believes many crypto firms are selling products that should be registered with the agency, which would subject them to much stricter oversight and rules.

SEC Warning

The SEC’s argument is that when a consumer invests their money “in a common enterprise” and expects to profit, then they’ve entered into an investment contract that the regulator has authority over. The industry was put on notice of the SEC’s hard line in September when Coinbase Global Inc. disclosed that the agency had threatened to sue it if it went ahead with a plan to pay users 4% for lending out their cryptocurrencies.

Since taking over in April, Gensler has repeatedly urged firms offering crypto-lending products to come speak with the agency about how they should be regulated. At the same time, the SEC has been laying the groundwork for a crackdown behind the scenes.

Over the past several months, the SEC has sent dozens of subpoenas and requests for information to crypto firms, according to people familiar with the matter who asked not to be named discussing private communications. Many of those inquiries have been related to digital-asset lending products, the people said. Some of the requests have been focused on DeFi platforms.

The SEC’s demands vary, but are often focused on the question of whether products fall under its oversight. For example, in one recent subpoena, agency enforcement attorneys asked certain DeFi platforms to explain how their products aren’t securities, according to one person, who asked not to be named because the request was private.

State Scrutiny

State-level securities regulators have also launched a broad examination of crypto-lending firms including BlockFi. New Jersey’s Bureau of Securities in July demanded that BlockFi cease and desist from offering its accounts, an order whose effective date has been extended to December.

Kentucky took a similar action, while authorities in Texas, Alabama, and Vermont told BlockFi to demonstrate why their states shouldn’t ban its lending product.

A key concern is that unlike bank deposits, the crypto accounts aren’t insured by the federal government. If a firm goes bust, customers could lose their funds.

Amid the regulatory scrutiny, J. Christopher Giancarlo, a former chairman of the Commodity Futures Trading Commission, quit BlockFi’s board in August. Giancarlo, who remains an adviser to the firm, declined to comment.

Despite the mounting legal questions, BlockFi is growing at a rapid clip. It’s on pace to make $475 million in gross revenue this year, according to Zac Prince, one of the firm’s founders. “Things aren’t slowing down,” he said during a recent interview for the Bloomberg Financial Innovation Summit that aired on Nov. 5.

Prince declined to comment on whether the firm was facing a federal probe. On its website, BlockFi says it’s in “active dialogue” with regulators from New Jersey, Texas, Alabama, Vermont and Kentucky and that its products are “lawful and appropriate” for crypto participants.

SEC Reportedly Looking Into BlockFi’s Crypto Yield Products

The crypto lender was already in hot water with a number of state securities regulators earlier this year.

BlockFi’s high-yield crypto interest products have reportedly come under the federal microscope.

Citing one anonymous source, Bloomberg reported Wednesday the U.S. Securities and Exchange Commission (SEC) is “scrutinizing” the New Jersey-based crypto lender. Reportedly at issue are BlockFi’s marquee landing products, which can yield as much as 9.5%.

BlockFi has maintained that its product is not a security. But securities regulators appear to disagree. Earlier this year, a bevy of state-level agencies opened investigations into BlockFi, which would make the SEC only the latest force to give a look.

BlockFi declined to comment.10-25

Updated: 11-17-2021

BlockFi Faces SEC Scrutiny Over High-Yield Crypto Accounts

* U.S. Regulator Examining Whether Lending Product Is A Security
* Fast-Growing Firm Already Responding To State-Level Inquires

BlockFi Inc. is being scrutinized by the U.S. Securities and Exchange Commission over its popular product that pays customers high interest rates for lending out their digital tokens, a development that significantly ratchets up the fast-growing crypto firm’s legal woes.

The SEC review focuses on whether the BlockFi accounts are akin to securities that should be registered with the regulator, according to a person with knowledge of the matter. The Jersey City, New Jersey-based firm touts annual yields as high as 9.5% on its website — a figure that dwarfs the 0.06% average interest rate for bank savings accounts.

States including New Jersey and Texas have already taken action against BlockFi, questioning whether it’s marketing illicit financial products that lack bedrock consumer protections.

BlockFi and other firms are able to pay high interest rates because they can charge institutional investors that want access to coins even more. The market is one of the hottest corners of crypto, with companies saying they’ve collected more than $40 billion in deposits.

Companies such as BlockFi aren’t the only avenues through which crypto investors have earned outsize yields. They’ve also plowed money into “decentralized finance,” or DeFi, platforms and “staked” coins to earn crypto in exchange for helping to maintain a coin’s network.

BlockFi, a private company with more than 500,000 retail accounts, was recently valued at more than $4 billion. Backed by Wall Street titans including Bain Capital and Tiger Global Management, the firm offers a suite of financial services to crypto investors, including trading accounts and loans that allow customers to borrow money against their virtual tokens.

The SEC hasn’t accused BlockFi of any wrongdoing and not all agency investigations lead to enforcement actions.

Spokespeople for BlockFi and the SEC declined to comment.

SEC Chair Gary Gensler has loudly asserted in a series of speeches that he believes many crypto firms are selling products that should be registered with the agency, which would subject them to much stricter oversight and rules.

SEC Warning

The SEC’s argument is that when a consumer invests their money “in a common enterprise” and expects to profit, then they’ve entered into an investment contract that the regulator has authority over. The industry was put on notice of the SEC’s hard line in September when Coinbase Global Inc. disclosed that the agency had threatened to sue it if it went ahead with a plan to pay users 4% for lending out their cryptocurrencies.

Since taking over in April, Gensler has repeatedly urged firms offering crypto-lending products to come speak with the agency about how they should be regulated. At the same time, the SEC has been laying the groundwork for a crackdown behind the scenes.

Over the past several months, the SEC has sent dozens of subpoenas and requests for information to crypto firms, according to people familiar with the matter who asked not to be named discussing private communications. Many of those inquiries have been related to digital-asset lending products, the people said. Some of the requests have been focused on DeFi platforms.

The SEC’s demands vary, but are often focused on the question of whether products fall under its oversight. For example, in one recent subpoena, agency enforcement attorneys asked certain DeFi platforms to explain how their products aren’t securities, according to one person, who asked not to be named because the request was private.

State Scrutiny

State-level securities regulators have also launched a broad examination of crypto-lending firms including BlockFi. New Jersey’s Bureau of Securities in July demanded that BlockFi cease and desist from offering its accounts, an order whose effective date has been extended to December.

Kentucky took a similar action, while authorities in Texas, Alabama, and Vermont told BlockFi to demonstrate why their states shouldn’t ban its lending product.

A key concern is that unlike bank deposits, the crypto accounts aren’t insured by the federal government. If a firm goes bust, customers could lose their funds.

Amid the regulatory scrutiny, J. Christopher Giancarlo, a former chairman of the Commodity Futures Trading Commission, quit BlockFi’s board in August. Giancarlo, who remains an adviser to the firm, declined to comment.

Despite the mounting legal questions, BlockFi is growing at a rapid clip. It’s on pace to make $475 million in gross revenue this year, according to Zac Prince, one of the firm’s founders. “Things aren’t slowing down,” he said during a recent interview for the Bloomberg Financial Innovation Summit that aired on Nov. 5.

Prince declined to comment on whether the firm was facing a federal probe. On its website, BlockFi says it’s in “active dialogue” with regulators from New Jersey, Texas, Alabama, Vermont and Kentucky and that its products are “lawful and appropriate” for crypto participants.

Updated: 11-17-2021

BlockFi Faces SEC Scrutiny Over High-Yield Crypto Accounts

* U.S. Regulator Examining Whether Lending Product Is A Security
* Fast-growing Firm Already Responding To State-Level Inquires

BlockFi Inc. is being scrutinized by the U.S. Securities and Exchange Commission over its popular product that pays customers high interest rates for lending out their digital tokens, a development that significantly ratchets up the fast-growing crypto firm’s legal woes.

The SEC review focuses on whether the BlockFi accounts are akin to securities that should be registered with the regulator, according to a person with knowledge of the matter. The Jersey City, New Jersey-based firm touts annual yields as high as 9.5% on its website — a figure that dwarfs the 0.06% average interest rate for bank savings accounts.

States including New Jersey and Texas have already taken action against BlockFi, questioning whether it’s marketing illicit financial products that lack bedrock consumer protections.

BlockFi and other firms are able to pay high interest rates because they can charge institutional investors that want access to coins even more. The market is one of the hottest corners of crypto, with companies saying they’ve collected more than $40 billion in deposits.

Companies such as BlockFi aren’t the only avenues through which crypto investors have earned outsize yields. They’ve also plowed money into “decentralized finance,” or DeFi, platforms and “staked” coins to earn crypto in exchange for helping to maintain a coin’s network.

BlockFi, a private company with more than 500,000 retail accounts, was recently valued at more than $4 billion. Backed by Wall Street titans including Bain Capital and Tiger Global Management, the firm offers a suite of financial services to crypto investors, including trading accounts and loans that allow customers to borrow money against their virtual tokens. The SEC hasn’t accused BlockFi of any wrongdoing and not all agency investigations lead to enforcement actions.

Spokespeople for BlockFi and the SEC declined to comment.

SEC Chair Gary Gensler has loudly asserted in a series of speeches that he believes many crypto firms are selling products that should be registered with the agency, which would subject them to much stricter oversight and rules.

SEC Warning

The SEC’s argument is that when a consumer invests their money “in a common enterprise” and expects to profit, then they’ve entered into an investment contract that the regulator has authority over. The industry was put on notice of the SEC’s hard line in September when Coinbase Global Inc. disclosed that the agency had threatened to sue it if it went ahead with a plan to pay users 4% for lending out their cryptocurrencies.

Since taking over in April, Gensler has repeatedly urged firms offering crypto-lending products to come speak with the agency about how they should be regulated. At the same time, the SEC has been laying the groundwork for a crackdown behind the scenes.

Over the past several months, the SEC has sent dozens of subpoenas and requests for information to crypto firms, according to people familiar with the matter who asked not to be named discussing private communications. Many of those inquiries have been related to digital-asset lending products, the people said. Some of the requests have been focused on DeFi platforms.

The SEC’s demands vary, but are often focused on the question of whether products fall under its oversight. For example, in one recent subpoena, agency enforcement attorneys asked certain DeFi platforms to explain how their products aren’t securities, according to one person, who asked not to be named because the request was private.

State Scrutiny

State-level securities regulators have also launched a broad examination of crypto-lending firms including BlockFi. New Jersey’s Bureau of Securities in July demanded that BlockFi cease and desist from offering its accounts, an order whose effective date has been extended to December. Kentucky took a similar action, while authorities in Texas, Alabama, and Vermont told BlockFi to demonstrate why their states shouldn’t ban its lending product.

A key concern is that unlike bank deposits, the crypto accounts aren’t insured by the federal government. If a firm goes bust, customers could lose their funds.

Amid the regulatory scrutiny, J. Christopher Giancarlo, a former chairman of the Commodity Futures Trading Commission, quit BlockFi’s board in August. Giancarlo, who remains an adviser to the firm, declined to comment.

Despite the mounting legal questions, BlockFi is growing at a rapid clip. It’s on pace to make $475 million in gross revenue this year, according to Zac Prince, one of the firm’s founders. “Things aren’t slowing down,” he said during a recent interview for the Bloomberg Financial Innovation Summit that aired on Nov. 5.

Prince declined to comment on whether the firm was facing a federal probe. On its website, BlockFi says it’s in “active dialogue” with regulators from New Jersey, Texas, Alabama, Vermont and Kentucky and that its products are “lawful and appropriate” for crypto participants.

SEC Reportedly Looking Into BlockFi’s Crypto Yield Products

The crypto lender was already in hot water with a number of state securities regulators earlier this year.

BlockFi’s high-yield crypto interest products have reportedly come under the federal microscope.

Citing one anonymous source, Bloomberg reported Wednesday the U.S. Securities and Exchange Commission (SEC) is “scrutinizing” the New Jersey-based crypto lender. Reportedly at issue are BlockFi’s marquee landing products, which can yield as much as 9.5%.

BlockFi has maintained that its product is not a security. But securities regulators appear to disagree. Earlier this year, a bevy of state-level agencies opened investigations into BlockFi, which would make the SEC only the latest force to give a look.

BlockFi declined to comment.

Updated: 11-18-2021

‘We Want To Build Minterest As A Fairer Financial System,’ Says CEO Josh Rogers

In an exclusive interview with Cointelegraph, Rogers discussed the technology, tokenomics and outlook of the Minterest borrowing and lending protocol.

Decentralized finance (DeFi) protocols have gained significant traction in the cryptocurrency sector, with a total value locked surpassing $271 billion, based on data from DefiLlama.

One exceptionally popular category of DeFi services is that of decentralized borrowing and lending, where users can pledge their crypto as collateral and take out stablecoin loans (or vice versa) to pay for everyday expenses while their investment continues to grow.

Such protocols typically charge a spread or difference between deposit and lending rates as a service fee. But then there are protocols like Minterest that seek to distribute a vast majority, if not all, of their profits back to users. Earlier this month, Minterest launched on Moonbeam, an Ethereum-compatible smart contract parachain on the Polkadot network.

During an exclusive interview with Cointelegraph, Minterest CEO Josh Rogers further elaborated on the goals of building a user-oriented DeFi platform.

Cointelegraph: Your firm claims to be the world’s first lending protocol that captures 100% of value from interest, flash loan and liquidation fees, which then get passed on to users. Would you care to elaborate on that?

Josh Rogers: Traditionally, what happens is that when you look at models, when you look at value capture, what you notice is that there are different parties who are beneficiaries. So, you are looking at lending protocols where the owners/developers take profits out. You have external liquidators who act as the third party who extract liquidation fees. And the thing to especially know about is flash loan fees, which may be extremely [inaduible] to the community in some way. But the thing to know about is that, that value capture fee-income protocol, goes to all these different parties. The intention with Minterest is that we capture all of that fee income on-chain, on the protocol, then we distribute it around the community of users in a way in which we believe is much bigger and much more inclusive. One of the things that stand out in bringing out an auto-liquidation process is that the protocol fee income it captures is far more significant than anything else out there because that fee income is normally lost from the protocol.

CT: So, what are some expected yields from passing off those revenues to users?

JR: Well, what happens is, the answer is I don’t know [laughs]. It’s very difficult for me to forecast that kind of thing. But when you think about this very type of headline, if you are looking at some of the value captures of the sector, it’s measured in the hundreds of millions of dollars. But what’s interesting is that when you look at lending protocols, generally there is no correlation between the supply of liquidity and lending activity and the token price. So, the value of the token is not correlated with protocols’ performance.

We do that when we capture all of this fee income. The protocol goes out on-market, and Minterest buys back its own tokens, and it distributes that token through to its users. Now, it’s not for me to say, and a big disclaimer is that I’m not trying to provide forecasts. But if you do headline numbers, if the protocols generate $100 million of fee income, which we should probably do when the borrowing is between $3 billion to $7 billion, that means the protocol is spending $8 million a month on its token. The protocol emits 820,000 tokens per month as part of its liquidity mod. So, if you’re spending $8 million a month and the token price is $10, then the protocol can supply all the tokens that it emits back, which is unrealistic. If the protocol is $8 million a month, then what is the token price? The answer is it’s more than $10. Now, at $40 a token, it’s buying back 50% of token emissions. At $80, it’s buying back 10%, which probably sounds more realistic.

The answer to the question is somewhere in there, or maybe more. The intention here is, and the reason that is important for the protocol generally is that it can compete with others in terms of APY. The more the token prices increase, the greater the internal APY that is actually being caused for the borrowers and lenders. That means it can attract more liquidity, outcompete and gain more longevity and relevance.

CT: Why choose Moonbeam, in particular, to launch your protocol?

JR: Well, there are a couple of key things. One, there’s the question of why Polkadot first, and why Polkadot is much more than another Solana or Algorand. There are some very powerful things about Polkadot that we really like. Initially, Minterest was built on Substrate — it was built to have its own parachain. But what it really came down to was actually time.

CT: One of the biggest barriers to entry for new DeFi users is probably high gas fees. What is Minterest doing to mitigate this?

JR: Well, that’s one of the beauties of being on Polkadot, as well as being on Moonbeam. Gas fees literally go away as a concern. When you think of one coming out of Ethereum with different degrees of success, but at the end of the day, that’s what the Polkadot architecture is designed to do. It’s designed to enable vast numbers of transactions to occur while still retaining very, very low gas prices and very, very high latency. So, that’s one of the key benefits: We see gas prices as becoming a nominal concern, a concern that will disappear on Polkadot. The gas prices just become fairly insignificant, not just for a brief period of time but permanently. And that’s a very important consideration.

CT: Has the platform been audited, financial- or programming-wise?

JR: We are actually going through three audits. We’ve got auditors coming in next month, so we’ve got three very significant work firms coming, and the audit process really goes into [inaudible]. Again, we’ve got more than 10,000 lines of code. It’s the most significant kind of codebase of any lending protocol out there. So, that process takes time. But we obviously are not going to be doing anything until we get these things off. We’ve got internal security onboard on our team, but you don’t rely solely on auditors alone from our perspective. Auditors are really there to ensure that nothing gets missed. And we consider audit-team relations to be ongoing. We really want our relationships to be with very, very incredible audit firms. So, the idea lies with security and trust.

CT: What are some steps Minterest is taking to protect users’ assets from malicious activities?

JR: That’s actually part of building the protocol. One of the key things is that when it actually catches value like Minterest does, it’s not a very big step to self-insure, but to build out the fee income it captures. But at the end of the day, what this comes down to is that building out protocols is not simple. So, while there are hundreds of DeFi projects around, it’s really a small handful of significant lending protocols, and the reason why is they are expensive to do well. If you want to do them cheaply and quickly, five guys in a garage could do. We have a team of 30 to 40 full-time staff, and that is not an insignificant exercise. The reason why we do that is because that’s what it takes to do it at a level to ensure these sort of events you are seeing across smaller protocols don’t occur. And by the way, mistakes can get made. You saw recent issues happening with one of the leading protocols; it wasn’t an exploit, it was just a small mistake, and I regard their teams as extraordinary professionals. That’s the reason why we build some form of insurance into the system, so that people don’t lose their money.

CT: What is your overall vision for Minterest?

JR: We want to build Minterest as a fairer financial system. And the reason we think it’s fairer is because when you look at lending protocols, people get liquidated very significantly, and that money goes off-protocol. What this is about is how do the people that create the value of the protocol benefit. And the people who create the value of the protocol are a large ecosystem of users, not just a small subset. So, what Minterest is built out to do is to enable people to really benefit from the value they create from participation. We think bringing a new design and framework to the protocol is going to be a new piece of innovation inside this sector. One of the things to look at is that sector leaders in the space have all brought breakthrough innovation. You look at Maker, you look at Curve, you look at Aave — each of the three protocols has brought enormous innovation into the space, innovation that I deeply respect. We like to think Minterest is also a very new innovation to the space for the benefit of the people, and that’s really what the protocol is about.

Updated: 11-24-2021

BlockFi Ends Free Withdrawals For Some Coins, Citing High Ethereum Network Costs

The crypto lender said it doesn’t expect to profit from customer withdrawal fees.

Cryptocurrency lender BlockFi will move to a rate-based withdrawal fee structure beginning Dec. 1, ending free withdrawals, as it cited “increasing transaction costs on the Ethereum network.”

BlockFi said in a Twitter post that the move will apply to ethereum, chainlink, PAXG, uniswap and BAT. As for bitcoin, litecoin and stablecoins, BlockFi noted that customers will continue receiving one free withdrawal per month. Additional withdrawals beyond that will incur fees that will vary by coin.

The company added that stablecoin withdrawals are always free through an ACH (Automatic Clearing House) bank transfer and it doesn’t expect to profit from any withdrawal fees.

Updated: 11-26-2021

Celsius CFO Arrested On Charges Tied To Former Job At Moshe Hogeg’s Firm

Yaron Shalem, the CFO of crypto lender Celsius, previously worked at Singulariteam, whose founder, Hogeg, was arrested last week on money laundering and other charges.

Yaron Shalem, the chief financial officer of cryptocurrency lending platform Celsius, was one of the seven people arrested in Tel Aviv this month in connection with Israeli crypto mogul Moshe Hogeg, CoinDesk has confirmed.

Three sources in Israel confirmed Shalem’s arrest. In a tweet Friday, Celsius said it was “recently made aware of a police investigation in Israel involving an employee,” without naming the person.

“While this is in no way related to the employee’s time or work at @CelsiusNetwork, the employee was immediately suspended. We have also verified that no assets were misplaced or mishandled,” the tweet said.

We were recently made aware of a police investigation in Israel involving an employee. While this is in no way related to the employee’s time or work at @CelsiusNetwork, the employee was immediately suspended. We have also verified that no assets were misplaced or mishandled.

— Celsius (@CelsiusNetwork) November 26, 2021

Court proceedings in Israel generally take place in public, except under certain extenuating circumstances when a gag order can be placed on an investigation to protect the identity of individuals involved, as is the case with the people that are part of the Hogeg investigation.

Shalem’s name was included – along with 17 others, including Hogeg’s – in an appendix to a document bearing the letterhead of the Israel police’s national fraud investigation unit. The page, reviewed by CoinDesk, was stamped Nov. 15 by Judge Erez Melamed of the Rishon Lezion Magistrate’s Court.

It is not clear from the appendix what kind of document it was attached to. However, the date on the stamp is three days before Israeli police said they had arrested eight individuals, including Hogeg, on suspicion of money laundering, fraud and sexual assault.

Celsius did not respond to requests for comment. Calls to Israeli police were answered with a prerecorded message, or not at all. When CoinDesk called the number listed for a Yaron Shalem in Tel Aviv and asked for him, the person who answered hung up.

In an “ask-me-anything” on Twitter late Tuesday, a Celsius staffer said he could not confirm or deny whether Shalem was one of the former Hogeg associates to have been arrested.

I tuned into the twitter spaces Celsius Network AMA and asked if their CFO Yarom Shalem was recently arrested in Israel as part of the Moshe Hogeg fraud case without the company disclosing it.

Not exactly an ideal answer pic.twitter.com/cCbJ5zWceN

— Nate Anderson (@ClarityToast) November 24, 2021

Shalem joined Celsius earlier this year. From January 2014 to March 2018 he worked as CFO for Singulariteam, a venture capital firm launched by Hogeg.

It is not clear what charge(s) Shalem was arrested on. Also unclear is who were the other six individuals who were reportedly arrested along with Hogeg.

Hogeg has been involved in controversy in the past, much of it dating back to the initial coin offering (ICO) boom of 2017. Shalem was named in a lawsuit against Hogeg back in January 2019, brought by Chinese investor Zhewen Hu, the Times of Israel reported.

Alex Mashinsky, Celsius’ founder and CEO, was an adviser to Hogeh’s Sirin Labs as recently as 2019, according to an archived version of the latter startup’s website.

Celsius has had its own share of troubles in recent months. In September, securities regulators in the U.S. states of Texas and New Jersey put Celsius under the microscope, alleging the company’s lending product qualified as an unregistered security.

Updated: 12-3-2021

Cryptocurrency Lending Platform Celsius Has Reportedly Lost Over $50 Million In The Exploit Of Decentralized Finance (DeFi) Protocol BadgerDAO

As reported by Cointelegraph on Thursday, the attack targeted the protocol on the Ethereum network, reaping an unconfirmed $120 million in assets.

According to one Redditor, the biggest alleged victim of the hack was an address that lost 896 Wrapped Bitcoin ($51 million). The address is supposed to be owned by Celsius “since it has interacted with other addresses known to be owned by them.”

The address regularly transacts with an address that has a $67 million balance, $40 million of which is Celsius’ eponymous native token CEL.

The address is also alleged to be owned by Celsius as it is related to at least one address that is tagged as Celsius Network Wallet 5 on Etherscan as they share several major transactions.

“All this means that there’s a high chance that the address who lost 900 BTC was owned by Celsius. Celsius has not confirmed anything yet, so this is all speculation for now, so we don’t know for sure if Celsius was affected or not,” the user suggested.

Celsius did not immediately respond to Cointelegraph’s request for comment.

The first reports on BadgerDAO’s security breach surfaced in early December, with the protocol officially announcing that it received multiple exports of unauthorized withdrawals of user funds on Wednesday. The Badger team continued investigating the issue and paused all smart contracts on the protocol to avoid any further losses.

The Celsius token experienced a notable drop in late November. After reaching $4.5 on Nov. 25, CEL dropped to as low as $3.9 the next day, slightly recovering since then. At the time of writing, CEL is trading at $4.00, which is down around 9% over the past seven days but up around 1% over the past 14 days.

Celsius Network is a major crypto lending platform, allowing users to earn interest on holding digital assets like Bitcoin (BTC). The company has emerged as one of the biggest players in DeFi, smashing a valuation between $3.5 billion after expanding its $400-million Series B funding round from October to $750 million in late November.

Updated: 12-7-2021

Fidelity And Nexo Are Entering Institutional Lending Market

The collaboration aims to give institutions access to digital assets with a new innovative product designed specifically for their needs.

Fidelity Digital Assets — the crypto wing of Fidelity Investments — and crypto borrowing and exchange platform Nexo have announced a partnership to offer crypto custodial services, products and lending services for institutional investors.

The two firms will create a comprehensive product line and legal infrastructure for institutional investors looking to get exposure to cryptocurrencies.

The partnership with Fidelity Digital Assets will allow Nexo to extend its asset portfolio and add a second custody level to its security architecture, according to an announcement. It also enables Fidelity Digital Assets institutional investors access to Nexo’s services as well as crypto prime brokerage.

Kalin Metodiev, co-founder and managing partner at Nexo, commented on the development saying:

“Working with Fidelity Digital Assets is the latest milestone in our quest to offer a complete institutional platform and to onboard traditional finance companies into the digital asset ecosystem. Our client base will now have full use of our industry-leading credit and trading products with reliance on Fidelity Digital Assets’ bespoke custody and security solutions.”

Christopher Tyrer, head of Fidelity Digital Assets in Europe, said that the firm has seen significant growth in institutional investor interest on the continent, and has expanded its partnerships in order to meet that demand.

Fidelity Investments has been ambitious in its plans for the institutional cryptocurrency market, making a number of strategic hires in the space. The company appears to be taking a more holistic approach to cryptocurrency, as the asset manager seeks to provide more institutional access points.

Updated: 1-4-2022

Nexo Co-Founder Targets Bitcoin At $100K By Mid-2022

Don’t write off Bitcoin, says Nexo co-founder Antoni Trenhcev. Every time you do, it significantly outperforms.

Another promising price prediction has appeared for Bitcoin bulls in 2022. Antoni Trenchev, co-founder and managing partner of Nexo, said that Bitcoin (BTC) could hit the $100,000 milestone as soon as the summer in an interview with CNBC.

Despite BTC opening the year with bearish price action, while the Fear & Greed Index shows “extreme fear,” the Bulgarian business mogul set the record straight:

“Every time that investors and the broader community write off Bitcoin, it outperforms significantly. This has been the case in 2020 when it rallied close to 1,000% and in 2021 where it rallied 63%. I’m quite bullish on Bitcoin.”

As one of the world’s largest lending institutions in the digital finance industry, Nexo is privy to insights from serving 2.5 million users across 200 jurisdictions. As a competitor to platforms such as BlockFi and Celsius, it has recently become one of the first crypto lenders to allow customers to borrow stablecoins, Ether (ETH) and other cryptocurrencies using nonfungible tokens as collateral.

While Nexo was forged in the bear market of 2018, Trenchev said that access to “cheap money” and institutions filling their bags with cryptocurrencies will propel Bitcoin over the $100,000 wall.

There’s plenty of evidence that institutional adoption is brewing. Last month, Fidelity Investments partnered with Nexo to offer crypto custodial services, products and lending services for institutional investors. On Monday, Sam Bankman-Fried, founder of FTX — which just listed the NEXO token — said that regulatory clarity would “help a ton on institutional adoption.”

In a nod to further Bitcoin adoption in developing countries, Trenchev concluded by saying “Latin America is the poster child” for cryptocurrency use cases. He joked that “all of them (countries) could be potential candidates for adopting cryptocurrencies as legal tender.”

Updated: 1-26-2022

Crypto Lending Firms Celsius Network, Gemini Face SEC Scrutiny

* Review Focuses On Whether Offerings Are Securities, People Say
* High-Yield Products Have Sparked Investor Protection Concerns

The U.S. Securities and Exchange Commission is scrutinizing cryptocurrency firms Celsius Network, Voyager Digital Ltd. and Gemini Trust Co. as part of a broad inquiry into companies that pay interest on virtual token deposits, according to people familiar with the matter.

The SEC enforcement review focuses on whether the companies’ offerings should be registered as securities with the watchdog, said the people, who weren’t authorized to speak publicly. The firms are able to pay customers rates higher than most bank savings accounts by lending out their digital coins to other investors, a practice that the SEC and states including New Jersey and Texas have said raises concerns about investor protection.

The probes add to uncertainty for the burgeoning sector, which is grappling with sharply falling coin prices — Bitcoin earlier this month plunged 50% from an all-time high — as well as regulators who are eager to put guardrails around digital assets.

BlockFi Inc., another crypto lender, faces SEC scrutiny, Bloomberg reported last year, and both Celsius and BlockFi have been the subjects of earlier enforcement actions by state securities regulators. Those reviews are ongoing, and the firms have disputed the allegations.

“We are one of many companies the SEC has reached out to regarding crypto yield products,” Gemini spokeswoman Carolyn Vadino said in a statement. “We are cooperating voluntarily with this industry-wide inquiry.”

“All discussions with regulators are confidential,” said Bethany Davis, a spokeswoman for Celsius. “We always have, and will continue to, work with regulators in the U.S. and globally to operate in full compliance with the law.”

The regulatory environment is evolving rapidly and “it’s normal for financial services companies, digital asset related or otherwise, to be in ongoing dialog with regulators,” Voyager spokesman Mike Legg said.

The SEC hasn’t accused Gemini, Celsius or Voyager of any wrongdoing and not all agency queries lead to enforcement actions. An SEC spokeswoman declined to comment.

Crypto lenders say they’ve collected more than $40 billion in deposits. The accounts look a lot like traditional banking, where firms take deposits and pay interest.

The difference is these firms offer rates on many tokens of 3% to as high as 18%, paid in digital coins, compared to the average bank savings account that yields 0.06%. Unlike bank deposits, the crypto accounts aren’t federally insured, meaning investors can lose their principal.

The companies generally say they make money by lending out the crypto at even higher rates to institutional investors, who need the tokens to execute their own trades. But since the firms don’t register their products with authorities, regulators have said they worry that potential risks aren’t disclosed to investors.

Celsius, which has $18.1 billion in deposits, incorporated in the U.K. in 2018 but last year said it would move its headquarters to the U.S. amid regulatory uncertainty. The private company recently raised money from investors including Caisse de Dépôt et Placement du Québec, Canada’s second-largest pension fund, valuing Celsius at more than $3 billion.

Gemini’s crypto exchange was launched in 2015 by Cameron and Tyler Winklevoss, the twins who famously feuded with Mark Zuckerberg over the founding of Meta Platform Inc.’s Facebook. The firm’s “Gemini Earn” crypto accounts pay interest of as much as 8.05%, which the firm says it earns by partnering with third party borrowers whose risk it vets.

New York-based Voyager, which also runs an exchange and had $7 billion in assets under management in November, is listed on the Toronto Stock Exchange and had a market value of about C$1.7 billion ($1.35 billion) as of mid-day Wednesday.

The SEC last year sent Coinbase Global Inc. a letter warning the company would be sued if it moved forward with a lending product, and the company later tabled its plans. Chair Gary Gensler has repeatedly said he believes many crypto firms are selling products that should be registered with the agency — and has urged firms to come speak with the watchdog about how they should be regulated.

State officials, including those in New Jersey, Texas, Alabama, Vermont, Kentucky and Washington, have brought several enforcement actions against Celsius, BlockFi or both and threatened to ban them from doing business.

Regulators in some of those states are now also considering taking similar action against Voyager, according to people familiar with the matter. It’s normal for companies to be in ongoing dialog with their regulators, Voyager’s Legg said.

SEC Scrutinizing Crypto Firms Over Interest-Paying Services

The U.S. regulator is considering whether these firms should file their offerings as securities.

The U.S. Securities and Exchange Commission (SEC) is probing crypto exchanges Voyager Digital and Gemini Trust and crypto lender Celsius Network as part of a wider investigation into crypto companies that pay interest on virtual token deposits, Bloomberg reported Wednesday, citing unnamed sources.

* The agency is considering whether these firms should file their offerings as securities with the SEC, Bloomberg reported, but the agency is not accusing any of the firms of wrongdoing at this time.

* These companies can pay higher interest rates on these assets than most banks do on savings accounts by lending their tokens to other investors.

* Several states, including Kentucky, New Jersey, Alabama and Texas have separately noted their unease with this practice by Celsius and BlockFi, among other companies.

* Gemini, Celsius and Voyager said they are cooperating with the SEC probe, Bloomberg reported.

* In September, the SEC threatened to sue crypto exchange Coinbase over a proposed lending program. Coinbase subsequently dropped its plans for the lending service.

Updated: 1-27-2022

Celsius’s 18% Yields On Crypto Are Tempting—and Drawing Scrutiny

Alex Mashinsky’s company promises big rewards if you let it hold your crypto. Regulators are trying to make sure it’s playing by the rules.

Every Friday, Alex Mashinsky sits in front of a video camera and livestreams for more than an hour with a sales pitch for his crypto company, Celsius Network LLC. Send money to Celsius, he says, and he’ll make you rich by paying you interest of as much as 18% a year.

“The beauty of what Celsius managed to do is that we deliver yield, we pay it to the people who would never be able to do it themselves, we take it from the rich, and we beat the index,” Mashinsky said during one stream in December. “That’s like going to the Olympics and getting 15 medals in 15 different fields.”

Celsius is effectively a bank for cryptocurrencies—though it’s not regulated as one. Users deposit their Bitcoin, Ethereum, or Tether and receive weekly interest payments. But the rates Celsius pays are tens or hundreds of times higher than what conventional banks pay on savings accounts. Its assets more than quadrupled last year, to $25 billion.

Mashinsky tells his users—he calls them “Celsians” and says there are more than a million of them—that with Celsius they can stick it to greedy banks and help the less fortunate, and they shower him with praise for helping them make enough money to pay off their debts or even quit their jobs.

Last year, Celsius raised an additional $750 million from investors including Canadian pension fund Caisse de Dépôt et Placement du Québec. The valuation of the funding round—about $3 billion—made Mashinsky a billionaire on paper.

With Bitcoin and other cryptocurrencies crashing, even the fat yields Celsius offers may be looking less dazzling. Since deposits are held in cryptocurrency, users are at risk when prices drop. And they’re not covered by federal deposit insurance. Celsius says its assets had declined to $18.1 billion as of Jan. 21, and Mashinsky has been telling customers not to panic, the bottom is near.

Celsius is just one of many crypto-lending platforms attracting deposits by offering high rates, all paid in cryptocurrencies. Celsius’s rates vary depending on the currency and other factors—about 3% to 8% on Bitcoin, 4% to 7% on Ether, 9% to 11% on Tether, and its top rate of 18% on a coin called Synthetix.

Investors get the highest rates if they accept yields in a token called CEL. Celsius says it’s able to pay such rates because it invests the deposits and earns even bigger returns, in part by lending cryptocurrency to traders, who are willing to pay high rates to use it for bets.

Roshun Patel, vice president for institutional lending at Genesis, a New York-based firm that also makes crypto loans to traders, says going rates for Bitcoin loans are 2% to 4%, with loans of stablecoins such as Tether costing more like 10%—which could be enough to cover what Celsius promises to pay depositors.

While the platforms are unregulated, the authorities are circling. The U.S. Securities and Exchange Commission is scrutinizing whether by offering crypto interest accounts, Celsius and other companies are selling unregistered securities against federal rules, say people familiar with the matter who weren’t authorized to speak publicly.

Securities regulators in Alabama, Kentucky, New Jersey, and Texas last year ordered or threatened to order the company to stop selling its products to residents of those states, and New York Attorney General Letitia James sent Celsius and other crypto companies a demand for information, often a precursor to a formal investigation.

“Celsius doesn’t apply visibility or transparency into what they’re doing with the principal that customers are depositing with them,” says Joe Rotunda, who heads enforcement for Texas’ securities regulator. “It’s one of the things that made us stand up and take notice.”

Celsius in state filings has denied the regulators’ allegations. “All discussions with regulators are confidential,” says Bethany Davis, a spokeswoman for Celsius. “We always have and will continue to work with regulators in the U.S. and globally to operate in full compliance with the law.”

Celsius is also facing heat from other quarters. After it came to light in November that the Israeli police were investigating the company’s chief financial officer for a fraud unrelated to Celsius, the company said on Twitter the employee under investigation was suspended and no assets were mishandled. The former CFO didn’t respond to a request for comment.

In December the Times of Israel reported that Celsius’s chief revenue officer had founded a side business with a convicted money launderer. The CRO told the newspaper that the company wasn’t related to Celsius and had never done any business.

Mashinsky, 56, is a charismatic pitchman who feeds off his customers’ energy. Born in Ukraine and raised in Israel, he lives in an apartment on Manhattan’s Upper East Side that he and his wife bought for $8.7 million in 2018.

In an interview there last year and another at the Bitcoin 2021 conference in Miami, Mashinsky told Bloomberg Businessweek that Celsius is able to pay such high yields because it passes along most of its earnings to its users.

He said it’s the traditional financial system that’s ripping people off by taking their deposits, using them to make money, and then claiming it can only pay tiny interest rates. “Somebody is lying,” Mashinsky said. “Either the bank is lying or Celsius is lying.”

His pitch can be so hyperbolic that it sounds more like he’s pushing the latest at-home business opportunity than a yield account. During another livestream in December, Mashinsky told the story of a customer who said Celsius had made her lazy—she was earning so much she didn’t have to work.

“I’m very happy for her and others,” he said. “But if we give you financial freedom and we give you this opportunity, you still have the responsibility to help others.”

In testimonials posted last year on Twitter as part of a contest in which customers shared their “Celsius Story,” many said they had entrusted Celsius with their life savings. One said he took out home equity and cashed in his work pension and his savings for his kids’ education to put the money into the company’s accounts. Another said it let him quit his job to move closer to his kid. One entry read: “I don’t trust the banking system, but I trust #Celsius.”

Mashinsky’s website says he’s “most known as the inventor of VOIP”—voice over internet protocol, the sending of phone calls over the internet, which would mean he was a pioneer in a foundational technology. But in interviews, people who worked on VOIP in its early days say Mashinsky didn’t invent the technology.

“He wasn’t the first,” says Ari Rabban, who worked for VocalTec Communications Ltd., generally acknowledged as the first company to sell a VOIP product. “I don’t know why he says it. There’s no need to.”

The website says he founded three unicorns—which generally means startups valued at more than $1 billion. One of those was an early player in the VOIP industry, Arbinet, which ran an online exchange where companies could buy and sell network capacity. Its valuation peaked at about $800 million when it went public in 2004.

But Mashinsky had been replaced as chief executive officer four years earlier. “Clients were extremely frustrated by the gap between Alex’s talk and the reality,” Jean-Louis Bravard, a former CEO of Arbinet, once said, according to a regulatory filing.

In his teens, Mashinsky started buying confiscated goods such as hairdryers and VCRs from customs auctions at Israel’s Ben Gurion Airport and reselling them for a profit, according to a 1999 article in the Industry Standard, a defunct tech publication.

The article also said that Mashinsky had attended three universities but never graduated and that, after moving to New York, he tried a few businesses, like “importing urea from Russia, selling Indonesian gold to Switzerland, and brokering poisonous sodium cyanide excavated in China for use by gold miners in the U.S.”

He also said he would like one day to get into the business of whole-body transplants. “Give an old person a new body—keep the head, keep the spine, and re-create the rest,” the article quotes him as saying.

Mashinsky raised $50 million for Celsius in 2018 with a token sale. He says the company, originally based in the U.K., was the first to offer yield on crypto. Last year, executives said Celsius would move its operations to the U.S.

Among its investors are stablecoin-issuer Tether International Ltd., which has been fined by regulators for lying about its assets—allegations Tether has denied. Mashinsky has said that Celsius also borrows money from Tether in the form of stablecoins, because traders often prefer to borrow Tether from Celsius, while depositors tend to send other coins.

In one of last year’s interviews, Mashinsky said banking and securities laws shouldn’t apply to Celsius, because cryptocurrencies are commodities, a view that many in the industry espouse. He compares Celsius to a neighbor who borrows a cup of sugar, then later gives back a cup and a tablespoon more.

“Let’s say we’re neighbors, and I came to you, and I borrowed sugar because I’m out of sugar,” he said. “The regulators today don’t look at these kind of loans as something that they need to regulate.”

Former employees, who requested anonymity to protect their job prospects, say that while the company’s investment strategy makes sense, Celsius has taken risks with users’ money that might surprise them.

In addition to lending to institutional investors, they say, Celsius has invested hundreds of millions of dollars of customer funds through DeFi protocols—apps run only by software that lets users deposit funds and earn high yields.

And they say one of the company’s top DeFi money managers—who maintains an anonymous Twitter account with an avatar of a demon mutant ape—left in the summer amid a dispute. In December, Celsius said it had lost $54 million in a DeFi hack but added that user assets weren’t affected.

In recent months, Mashinsky has been talking more about making money by mining Bitcoin—running computers that help maintain the Bitcoin network in exchange for Bitcoin rewards.

He told crypto publication Blockworks that Celsius had 22,000 specialized computers. Celsius also invested $54 million in Bitcoin mining company Core Scientific. Since the deal was announced, Core’s stock had dropped 21% as of Jan. 25.

“Look, there’s no free lunch out there,” says Duke University finance professor Campbell Harvey, who co-authored DeFi and the Future of Finance. “If someone is offering an extremely high expected return, you have to be very cautious.”

Updated: 2-1-2022

The Ups and Downs of Crypto Loans (Podcast)

Updated: 2-3-2022

a16z-backed TrueFi Launches DeFi Lending Market For Asset Managers

Ali Yahya, a general partner at Andreessen Horowitz, told Cointelegraph that TrueFi will “bring the unique advantages of DeFi to a wider and global user base.”

Stablecoin operator TrustToken has launched a new lending marketplace that allows asset managers to create their own decentralized finance products, potentially opening the door to wider mainstream adoption of DeFi solutions.

The new lending marketplace, which is offered on unsecured lending protocol TrueFi, gives independent financial institutions the ability to design, launch and fund new investment products. Asset managers also have access to TrueFi’s pool of lenders and borrowers as well as TrustToken’s institutional offerings.

Version 1 of the TrueFi protocol was shipped to institutional clients in November 2020 around the same time that the native TRU token launched. The protocol allows for the creation of collateral-free loans denominated in the TrueUSD stablecoin and vetted using on-chain credit scores. In 2021, the protocol originated $1 billion worth of loans.

TrueFi is described as an “app store for lending,” but instead of developers launching applications, the protocol enables asset managers to launch new financial portfolios directly on-chain.

Institutions are bullish on #Bitcoin!

The amount of BTC held by public companies has gained significant market share from that held in spot ETFs. https://t.co/DZP2AlMXlh

— Cointelegraph (@Cointelegraph) January 3, 2022

On Thursday, Delt.ai, a Mexico-based Y-Combinator startup, was announced as TrueFi’s first non-crypto financial partner. Since December, the startup has used TrueFi to originate millions of dollars worth of loans and expects to lend up to $25 million to Latin American businesses by the end of 2022.

TrueFi’s current lenders are “largely private, pseudo-anonymous individuals and family offices in DeFi, participating at a range of investment sizes,” TrustToken CEO Raphael Cosman told Cointelegraph in a written statement. TrueFi’s borrowers are likewise increasingly diverse, representing crypto hedge funds, venture capital-backed startups and soon-to-include traditional financial institutions.

When asked about the driving force behind the growing institutional adoption of blockchain-based financial products, Cosman told Cointelegraph that “capital will always seek the best risk-adjusted yields,” regardless of whether it’s coming from DeFi or traditional finance.

“The best yields are no longer in traditional markets, like equities or bonds, but in DeFi,” he said. “That promise of lucrative returns is the biggest force pulling traditional finance on-chain, and we expect it to continue.”

Even with the promise of higher yields, the transition to the unfamiliar world of crypto isn’t easy for many financial institutions. Cosman explained:

“First, it takes any organization time to understand and become comfortable with the “wild west” of crypto. This includes understanding the technology, the risks, the mechanisms for trading and custody of assets, and how to bring money into and out of crypto […] The same goes for compliance and regulatory clarity.”

Institutions want Bitcoin now more than ever, and Fidelity just revealed that 90% of their biggest clients are clamoring for crypto. https://t.co/MdsFljbqhL

— Cointelegraph (@Cointelegraph) August 17, 2021

Institutional involvement in the blockchain industry has broadened considerably over the past year, with asset managers buying into cryptocurrency funds and financial institutions utilizing crypto transactions with greater frequency.

Several crypto-focused companies have also expanded their service offerings to target institutions, chief among them being ConsenSys, the blockchain infrastructure provider behind popular wallet extension MetaMask. In May 2021, the company announced a new service designed to onboard institutional players to the DeFi ecosystem.

Updated: 2-9-2022

Don’t Expect Rising Interest Rates To Boost Your (Fiat) Savings Account

Banks are unlikely to pay depositors more after the Fed first lifts rates because the lenders don’t need the money.

Interest rates are about to rise. Savers shouldn’t get their hopes up.

The Federal Reserve has signaled it will raise rates in March, the first in what is expected to be a series of increases this year. Higher rates usually mean bank customers stand to make more on their deposits. Not so this time.

Banks have little incentive to raise the interest they pay on deposits because they simply don’t need the money. Government stimulus plumped up Americans’ bank-account balances, and companies are flush with cash. Total deposits at U.S. commercial banks have swelled to about $18.1 trillion, up from about $13.3 trillion at the start of 2020.

Banks—which pocket the difference between what they charge borrowers and what they pay depositors—are expected to use the opportunity to breathe life into their bread-and-butter lending businesses. Profit margins from lending fell to new lows across the banking industry after the Fed cut rates to near zero in March 2020, during the onset of the Covid-19 pandemic.

The average rate on a savings account at the largest U.S. banks stood at roughly 0.06% at the end of last year, according to Bankrate.com. Many high-yield savings accounts, which offered 1.5% or more before rates headed toward zero in early 2020, now offer rates around 0.5%.

On fourth-quarter earnings calls last month, bank executives said those rates aren’t likely to move in tandem with Fed increases this time around.

The “overall rate paid will be lower in this next rising-rate cycle,” said Jenn LaClair, chief financial officer at Ally Financial Inc., which offers a high-yield savings account.

For deposit rates to rise, banks need to make more loans. Low rates coupled with lackluster demand from borrowers for much of the pandemic put deposits and loans out of whack. But that is starting to shift. Banks reported higher loan demand in the last three months of 2021, and most expect that trend to continue in 2022.

“You’re not going to see deposit rates jump with any sort of magnitude until banks have many more loans on the books than they do today,” said Pete Gilchrist, head of retail deposits and commercial banking at Curinos, a financial-services research firm.

Rising rates might nudge some deposit customers to move a chunk of their money into higher-yielding investments. That could prompt some banks to raise deposit rates.

Ryan Engle of Austin, Texas, opened a high-yield savings account with American Express Co. when it offered a rate of more than 1.5%. About a year later, he noticed that the rate had started to decline, on the way to its current 0.5%.

“At that point I realized that money was probably doing nothing, and I should probably do something with it,” Mr. Engle said. “But work got busy again so I was like, ‘You know what? At least it’s safe.’ ”

Mr. Engle said he plans to hand the savings over to a wealth manager to invest this year.

Updated: 2-11-2022

Crypto Lender BlockFi To Pay $100 Million In Settlement With SEC, States

* Settlement With SEC And States Could Come As Soon As Next Week
* BlockFi Faces Probes Into Selling Unregistered Securities

BlockFi Inc. is poised to pay $100 million to settle allegations from the Securities and Exchange Commission and state regulators that it illegally offered a product that pays customers high interest rates to lend out their digital tokens, according to people familiar with the matter.

The penalties, which could be announced as soon as next week, are among the toughest levied on a cryptocurrency firm amid a U.S. clampdown on the industry. The SEC and state investigators have been probing whether the accounts offered by BlockFi are akin to securities that should be registered with regulators.

Scrutiny has been mounting on crypto-lenders, which have attracted tens of billions of dollars in deposits by promising yields that far exceed those available through traditional savings accounts. As part of its agreement with regulators, BlockFi will no longer be able to open new interest-yielding accounts for most Americans, the people said.

“We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors,” said BlockFi spokesperson Madelyn McHugh. “We can confirm that clients’ assets are safeguarded on the BlockFi platform and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”

An SEC spokesperson declined to comment.

SEC Chair Gary Gensler has been sounding the alarm on fast-growing crypto firms, arguing that some are offering financial services without adhering to benchmark investor-protection rules that banks, brokers and other long-established entities have long had to comply with.

BlockFi, based in Jersey City, New Jersey, will pay a $50 million fine to the SEC and another $50 million to various states, said the people who asked not to be named because the deliberations are private. It’s among several companies, including Celsius Network and Gemini Trust Co., that have become wildly popular with retail investors for paying yields that sometimes exceed 10%.

Securities regulators from several states last year brought enforcement actions against BlockFi and Celsius over the accounts, arguing that the companies were selling unregistered securities with undisclosed risks. The SEC is also scrutinizing Celsius, Gemini and Voyager Digital Ltd. over similar issues, Bloomberg reported in January.

At the time, a Gemini spokeswoman said the company was cooperating with an “industry-wide inquiry” into crypto-yield products. Celsius said it was working with regulators to “operate in full compliance with the law” and a Voyager spokesman said it was routine to be in ongoing communications with watchdogs. The SEC hasn’t accused any of the companies of wrongdoing.

The SEC has separately warned Coinbase Global Inc., the biggest U.S. crypto exchange, that it would sue if the company moved forward with a lending product, prompting the company to suspend the project in September.

Executives at BlockFi have said they are able to pay such high yields to customers because institutional investors will pay them even more to borrow the deposits. But the companies don’t provide a detailed accounting of how the funds are used or in what circumstances investors could lose their cryptocurrency. Unlike bank accounts, the crypto-interest accounts aren’t federally insured.

Earlier this year, BlockFi said its Bermuda-based subsidiary would handle foreign clients. It also introduced a non-interest-paying crypto wallet and a new-interest product for accounts with at least $3 million in cryptocurrencies.

Updated: 2-17-2022

High-Yield Crypto Accounts Offer Big Returns, Bigger Risk

Digital currency lending platforms are luring savers with advertised interest rates of 9% or more. But customers too often fail to read the fine print.

U.S. Securities and Exchange Commission Chairman Gary Gensler has repeatedly said the crypto markets are like the “Wild West,” with insufficient protections for investors.

A presidential working group has cautioned that some crypto platforms were allowing investors to make risky high-leverage bets. And the Treasury Department has called for legislation requiring some crypto issuers to be insured just as banks are.

Their warnings are much needed. The trouble is, few people seem to be paying attention.

An SEC order this week against BlockFi, a prominent crypto lending firm, highlights the perils for ordinary investors hoping to make easy returns from cryptocurrencies.

In this case, BlockFi, which promises high yields to investors willing to lend their digital tokens to the platform, misstated the amount of collateral that third-party borrowers had put up against their loans, exposing the original retail investors to heavy potential losses.

BlockFi agreed to pay a $100 million penalty to settle allegations that it had illegally sold interest-bearing accounts without properly registering them as securities with the SEC, a move that would have required more disclosure to investors.

The company was able to attract investors to the platform in the first place because it advertised interest rates as high as 9.5% on its website last year. There were caveats in disclosures accompanying the transactions, fine print that too few investors take the time to read.

BlockFi isn’t alone in marketing these types of products. A web search for “crypto interest-bearing accounts” yields several ads offering annualized interest rates of 8% to 13% for lending out crypto deposits. Such high rates inevitably lure vulnerable savers who might not know the full risks these investments entail.

A fundamental problem facing ordinary investors is that high-yield crypto accounts don’t offer the same protections as traditional bank and brokerage accounts. The Federal Deposit Insurance Corp. covers funds up to a certain amount in the event of bank insolvency, while the Securities Investor Protection Corp. offers similar safeguards in the case of a broker default. But crypto investors generally are on their own.

Fortunately, the SEC has started to take steps to protect crypto investors. Earlier this week, the agency issued a special bulletin warning that investors could face losses if crypto lending companies holding tokens were to fail or go bankrupt.

High-yield crypto investments might work out fine when markets are stable. But what happens when there is a major dislocation? If hedge funds or other institutional investors renege on their commitment to return assets, it could cause cascading losses for interest-bearing crypto-account holders.

The current high-yield crypto market is eerily reminiscent of the early days of the 2008 financial crisis, when Icelandic banks offered high yields to global retail investors. In that case, the banks had taken inordinate risk in questionable housing investments, leaving them unable to meet their obligations when investors began withdrawing their money en masse.

Retail investors should be wary about the promise of sky-high returns. If it sounds too good to be true, it often is.

Updated: 2-18-2022

Crypto Lender Nexo Halts Interest On New Deposits

* Decision Follows Recent SEC Settlement With Another Lender
* Nexo Plans To Offer New Product After Registering With Agency

Crypto platform Nexo appears to be changing the terms for U.S. customers to a product that offers the ability to earn high interest rates on crypto deposits. The decision follows the U.S. Securities and Exchange Commission’s recent settlement with BlockFi Inc. over a similar product.

In a statement posted to its official subreddit Friday by a moderator who isn’t an employee with the company but says he works “closely” with them, Nexo said the changes are an effort to voluntarily comply in light of BlockFi’s agreement to pay $100 million to federal and state securities regulators to settle allegations that it illegally offered a product that pays customers high rates to lend out their digital tokens.

BlockFi is now planning to register its offerings with the regulator — a path that Nexo on the subreddit platform said it also intends to follow. Nexo’s current U.S. customers won’t be able to earn interest on new deposits, though they’ll be able to continue earning on existing digital-asset balances, the statement said. New clients won’t be able to access the product at all.

The firm said it eventually intends to make a new offering available that is compliant with the securities laws. The recently announced changes will be in place “until the restructuring of the Earn Interest Product and the registration process with the relevant regulatory bodies are finalized,” according to the statement. Nexo didn’t immediately return a request for comment.

Nexo on its website touts its interest-bearing product as offering up to 20% in annual interest for investors. The firm said non-U.S. clients will remain unaffected by the recent updates.

Bloomberg reported in January that SEC is scrutinizing Celsius Network, Gemini Trust Co., and Voyager Digital Ltd. over issues similar to the ones raised in the BlockFi settlement.

Crypto Lending Company Celsius Names New CFO

Rod Bolger previously led the finances of Canada’s largest bank.

Celsius Network LLC, a cryptocurrency lender, has hired the former finance chief of the Royal Bank of Canada to become its new chief financial officer.

Rod Bolger, who left Canada’s largest bank in September after five years as its CFO, officially started working at Hoboken, N.J.-based Celsius on Monday.

Mr. Bolger succeeds interim CFO Roni Cohen-Pavon, who stepped in after the previous finance chief, Yaron Shalem, was named in Israel as part of a police investigation into money laundering.

Mr. Shalem had been CFO for 10 months, according to his LinkedIn profile. Celsius suspended him in November and said that no company assets were misplaced or mishandled. The company declined to comment beyond its earlier statement.

Celsius holds more than $20 billion worth of cryptocurrencies, including bitcoin. Though it is not a bank, the company emulates many of the services offered by traditional financial firms. Celsius accepts crypto deposits, allows people to borrow U.S. dollars against their holdings and offers returns to depositors as high as 17.85%, depending on the currency.

It is part of the decentralized finance industry, or DeFi, where companies offer financial services on public blockchains.

Celsius has also invested in cryptocurrency miners, including Rhodium Enterprises Inc. and Luxor Technology Corp., in a bid to diversify its revenue sources.

The privately held company raised $750 million in a Series B funding round in November from investors including San Francisco-based investor WestCap Group LLC and Caisse de dépôt et placement du Québec, one of Canada’s largest pension funds, giving it a valuation of $3.5 billion.

Mr. Bolger will be tasked with shepherding the crypto lender through its next phase of growth, said Celsius Chief Executive Alex Mashinsky.

“His seasoned experience as the CFO at one of the world’s largest banks will be pivotal to our commitment to remain compliant with new regulations as we scale, and furthers our commitment to our customers in providing a world-class experience on our platform,” Mr. Mashinsky said in a statement.

Mr. Bolger is the latest executive that Mr. Mashinsky has hired to bolster Celsius’ ranks. The company appointed a new chief operating officer and a chief investment officer in January, looking to build out the company’s infrastructure, governance and management practices.

Mr. Bolger said he joined the company because he is interested in how quickly technology and services in financial services have been developing, and wants to help provide a governance and financial framework for services that have yet to be fully integrated into the financial system by regulators.

Celsius plans to eventually go public, said Mr. Bolger. Meanwhile, he expects the learning curve to be steep, though rooted in familiar ideas, he said.

“It’s about helping clients earn money, borrow money and swap money. Those concepts are second nature to me,” Mr. Bolger said.

Caisse declined to comment on the hire, and WestCap didn’t immediately respond to a request for comment.

Updated: 2-22-2022

Crypto Lender Celsius Appoints CFO Following Predecessor’s Arrest

Rod Bolger replaces Yaron Shalem, who was arrested in Tel Aviv in November in connection with Israeli crypto mogul Moshe Hogeg.

Cryptocurrency lending platform Celsius appointed Rod Bolger, the former chief financial officer of RBC, Canada’s largest bank, as its new CFO.

* The appointment will bring Bolger’s experience in M&A and initial public offering (IPO) transactions to Celsius, the firm announced Tuesday. He previously held positions at Bank of America and Citigroup.

* CEO Alex Mashinsky has been bulking up his senior management team. Earlier this year Aslihan Denizkurdu was named as chief operating officer, and Tushar Nadkarni joined as chief growth and product officer in November.

* Bolger replaces Yaron Shalem, who was arrested in Tel Aviv in November in connection with Israeli crypto mogul Moshe Hogeg. From January 2014 to March 2018 he worked as chief financial officer for Singulariteam, a venture capital firm launched by Hogeg.

* Shalem was one of seven people arrested in connection with an investigation into Hogeg on grounds of “committing fraudulent offenses in the field of cryptocurrencies, amounting to hundreds of millions of shekels,” according to an Israeli police statement at the time.

* Celsius announced on its Twitter account that it had been made aware of a police investigation in Israel involving an employee, who had been suspended immediately. “While this is in no way related to the employee’s time or work at Celsius Network, the employee was immediately suspended,” it said.

Updated: 2-24-2022

Maple Finance Partners With Celsius To Launch wETH Lending Pool

The capital pool promises to enable greater access to finance for traditional corporations and institutions seeking to capitalize on emerging opportunities within the DeFi space.

Digital asset lending platform Celsius has become the first pool delegate from the centralized finance market to deploy a crypto-centric lending service on Maple Finance, utilizing the latter’s smart contract and blockchain infrastructure to facilitate a $30 million pool to institutional investors.

Celsius succeeds existing pool delegates BlockTower, Orthogonal Trading, Maven 11 and Alameda Research in partnering with Maple on such an endeavor.

The introduction of wrapped Ether (wETH) is set to complement the existing accessibility to trade Circle’s native stablecoin, USD Coin (USDC), enabling investors to utilize the asset across an array of trading components, including staking, lending and borrowing.

Cointelegraph spoke to Sidney Powell, Maple Finance’s co-founder and CEO, to uncover the prerequisites and financial nuances that interested institutional investors must be aware of before engaging with the pool.

Powell shared that “Institutions work directly with the Celsius team to borrow from this pool. Borrowers have to pass through Celsius’ established KYC and credit assessments,” adding:

“In this instance, digital asset institutions Wintermute and Amber have already been doing business on Maple, so have an on-chain credit reputation, and signed a Master Loan Agreement (MLA) too. This, plus Celsius’ established processes, means onboarding has been streamlined for all parties.”

Maple Finance revealed to Cointelegraph that the initial syndicated loan of $47.25 million issued to Alameda Research in mid-November 2021 has today exceeded $100 million, with the FTX-associated trading firm being the sole borrower in the transaction.

Abra deposited $25 million alongside other projects including the popular play-to-earn horse racing game Zed Run and CoinShares.

Build, ship, , repeat! https://t.co/BN9zwCKeBa

— Maple Finance (@maplefinance) February 18, 2022

“Syndicated loan” is a term that denotes the process by which financial institutions, typically from the banking industry, extend finance to private corporations, either on an individual basis or as part of a consortium.

The capital afforded to these corporations is viewed in the form of a loan and, as such, is subject to inflationary payback schemes dependent on the case complexity and evaluated risk.

Over the past few years, a number of prominent banking institutions have participated in blockchain-centric syndicated loans — more recently also traversing over to decentralized finance (DeFi) — including BNP Paribas and ING, which were two of seven major banks to partner with R3 and Finastra in October 2017, and BBVA, which implemented a distributed ledger technology model with British news agency Finextra the following year.

Following its inception just nine months ago, Maple has grown exponentially to register $768million in loans originated, and $649 million in total value locked at the time of writing. Moving forward, it expects to achieve $5 billion in TVL by year-end, alongside $1 billion of loans within the Alameda pool across the same time period.

Powell Commented On The Necessary Due Diligence That Traditional Firms Should Consider And Complete Before Engaging With The DeFi Space:

“Maple was built to disrupt the banking infrastructure that I had to work with within traditional finance. But when it comes to due diligence, the same rules apply!”

He added that asset managers at traditional firms have all the equipment necessary in the DeFi space, “just faster and more efficiently because the information is on-chain information and immutable.”

Updated: 2-28-2022

Tribal Partners With Visa To Expand Credit Options For Businesses

The initiative is focused on expanding credit and financing options for small- and medium-sized businesses in Latin America.

Crypto-focused enterprise payment platform Tribal Credit has partnered with Visa to expand credit and financing options for small- and medium-sized enterprises across Latin America, highlighting the growing synergies between traditional payment providers and the blockchain industry.

The partnership with Visa allows Tribal to issue business credit cards in local denominations and currencies across Latin America, including Mexico, Brazil, Colombia, Argentina, Chile, Peru, Panama, Uruguay and the Dominican Republic.

A Tribal spokesperson informed Cointelegraph that the company’s initial focus is on providing this credit facility to the countries of Colombia, Peru and Chile.

While the Visa partnership is centered around providing small businesses with traditional financing solutions, Tribal’s technology also allows enterprises to utilize cryptocurrencies and blockchain technology to accept payments and transfer funds.

In December 2021, Tribal partnered with Latin American crypto exchange Bitso and the Stellar Development Foundation to create a new enterprise cross-border payment service that utilizes Stellar’s USD stablecoin.

Tribal highlighted El Salvador’s Bitcoin Law and the growing acceptance of cryptocurrencies in Latin America as reasons to continue developing blockchain-based payment solutions.

https://t.co/rzNJRigp5u https://t.co/rzNJRigp5u

— Indira Kempis de I. (@IndiraKempis) February 22, 2022

Visa, too, has broadened its outlook on cryptocurrencies and has even developed a blockchain interoperability project for digital payments. The project, dubbed “Universal Payment Channel,” is researching blockchain interoperability with the aim of streamlining digital asset transfers across chains.

In December 2021, the credit card giant announced a new crypto consulting service aimed at helping merchants and banks integrate digital assets into their business models.

Interestingly, Visa has also dabbled in the nonfungible token market after purchasing a CryptoPunk for $150,000 in August 2021. The same month, Visa published a white paper touting NFTs as a “promising medium for fan engagement.”

The SEC Takes Reactionary Moves Against Crypto Lending

“The SEC attacks the crypto industry while Commissioner Peirce continues to advocate for reasonableness, and the huge $100 million BlockFi lending settlement is first alleging investment company registration violations.”

It is unfortunate that the United States Securities and Exchange Commission has chosen to send a message to the crypto industry by extracting a huge $100 million settlement from the lending platform BlockFi in an administrative proceeding publicly announced on Feb. 14.

It was quite a Valentine’s Day kiss — $50 million for the SEC and $50 million for some 32 states that piled on because they saw an easy target.

Don’t misunderstand: I agree with the SEC that as a part of its lending activity, BlockFi likely offered products that could be characterized as “securities” under their definition in the Securities Act of 1933 in Section 2(11).

Regular Cointelegraph readers may recall me talking about a similar lending program planned by Coinbase that would likely be a “security” given that the loaned assets were all pooled together for lending purposes.

The legal analysis by the SEC takes a somewhat different approach, with the lending program presented as both an “investment contract” and “note” under Section 2(11). Thus, the fact that the SEC commenced an action for that federal securities law infraction does not surprise me.

What is somewhat troubling, though, is both the size of the penalty and the assertion that BlockFi operated as an unregistered investment company under the Investment Company Act of 1940.

Indeed, I am not the only one disturbed by this. SEC Commissioner Hester Peirce publicly dissented by way of issuing a “Statement on Settlement with BlockFi Lending LLC” the same day the SEC proceeding commenced. In the statement, she asks:

“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.”

Bravo to Commissioner Peirce! For both her fearless boldness in advocating for a more reasoned regulatory approach to advancing the nascent crypto industry and for her being, at this time, the sole shining beacon the industry can count on to question the knee-jerk reactionaries in government — reactionaries that care little about whether they throw the proverbial baby out with the bathwater.

The U.S. Regulatory Landscape

There was a time when “Crypto Mom” had at least one ally on the commission who, like her, sought to protect blockchain from over-regulation. Elad Roisman, a fellow Republican appointed by former President Donald Trump, joined Peirce in advocating for reasonable regulation for the industry.

But he resigned from the SEC in January, having served for little more than three years as a commissioner.

Peirce was nominated to the SEC by Trump and confirmed in January 2018, so she has one more year of her five-year term.

Let’s all hope she is reappointed by President Joe Biden, as once she is gone from the SEC, the actions of Chair Gary Gensler will go unchecked, and we can expect many more efforts by him to, in the name of investor protection, impose disproportionate “telephone book” settlement numbers.

As I have previously written, Gensler is an aggressive government regulator, having demonstrated his tenacity in imposing regulation while at the Commodity Futures Trading Commission. His deep knowledge of blockchain and crypto, as demonstrated by having taught the subject at MIT, is both a blessing and a curse.

While chair of the CFTC, he pushed through hundreds of rules and regulations to implement Dodd-Frank legislation, including regulating swaps transactions.

He has spent the better part of the last 25 years in and out of the U.S. government, so he has political instincts. From his bio, it does not seem he has worked in the private sector since the mid-1990s.

In the SEC press release announcing the BlockFi settlement, Gensler states:

“​​It [the settlement] further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws [the Securities Act and Investment Company Act].”

Really? I don’t believe or accept that for one minute. How is a $100 million penalty showing the SEC’s “willingness to work with crypto platforms”? It seems to me that this is quite a significant financial penalty.

While I am not privy to how this settlement came about, I doubt very much that BlockFi, if and when it approached the SEC to discuss its compliance efforts, thought that by voluntarily coming forward and cooperating it would be hit with a $100 million settlement!

Moreover, most startups are not in a position to fork over that spare change, and I think this settlement may deter them from cooperating and self-reporting.

The BlockFi Settlement

In this case, BlockFi allegedly offered and sold BlockFi Interest Accounts, or BIAs, through which investors could lend their crypto assets to the company in exchange for its agreement to provide variable monthly interest payments.

According to the administrative “Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order,” BlockFi generated the interest paid out to investors by deploying its assets in various ways, including loaning crypto assets to institutional and corporate borrowers, lending U.S. dollars to retail investors, and investing in equities and futures.

As of December 2021, BlockFi and its affiliates held about $10.4 billion in BIA investor assets and had over 500,000 BIA investors, including almost 400,000 in the United States.

Maybe the SEC justifies this huge settlement amount because BlockFi consented to findings, without admitting or denying them, that it made materially false and misleading statements on its website concerning its collateral practices and, therefore, the risks associated with its lending activity.

For this, the company is charged with violating the anti-fraud provisions of the Securities Act, Sections 17(a)(2) and 17(a)(3). Yet, as Peirce notes in her dissent:

“There is no allegation that BlockFi failed to pay its customers the money due them or failed to return the crypto lent to it.”

In other words, there was no financial harm to investors from the purported misstatements. Also, like me, she acknowledged that misrepresentations about over-collateralization are serious — it was less than 24% of the time, according to the order.

But to the commissioner, “The combined $100 million penalty nevertheless seems disproportionate.”

One final point on the settlement, and the dissent, is noteworthy. The order states that BlockFi has agreed to seek to register as an investment company. (I will leave whether I agree with the SEC’s analysis that the BIA program made BlockFi an “investment company” for another day.)

Yet, as Peirce aptly stated, registration “is often a months-long, iterative process,” and “When crypto is at issue, the timeframe is likely to be longer.”

Until the registration is effective, BlockFi has agreed to stop offering lending products to U.S. citizens. Also, there are other obstacles the SEC could bring forward to deny registration, such as the fact that BlockFi cannot register as an investment company since it issues debt securities, so an exemption from registration will likely be required.

I wonder if BlockFi or its counsel actually thought through a successful path to ever again offer BIAs to U.S. citizens before it settled.

According to Peirce, “The investor protection objective of today’s settlement will be poorly served if retail investors are ultimately shut out from participation in these products. Second, our process speaks volumes about our integrity as a regulator.

Inviting people to come in and talk to us only to drag them through a difficult, lengthy, unproductive, and labyrinthine regulatory process casts the Commission in a bad light and thus makes us a less effective regulator. […] 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.” Are you listening, Gensler?

Updated: 3-1-2022

Crypto Adds Efficiency To Global Trade And Financing, Says Bequant Exec

Martha Reyes, head of research for Bequant, says that tokenizing trade finance assets can facilitate access to capital for SMEs.

Global trade and financing suffer from inefficiencies because of traditional infrastructures. However, according to Martha Reyes, the head of research at Bequant, crypto can fix this issue.

In an interview with Cointelegraph, Reyes shared her thoughts on the state of global trade and financing and how crypto makes this more efficient. According to Reyes, despite the growth and magnitude of global trade, areas like remittance payments still suffer from the number of intermediaries that transactions have to go through.

This leads to lengthy transaction times. Reyes notes that legacy systems for cross-border payments make global trade a “prime candidate” for blockchain technology adoption.

“Digital ledger technology can make complex trade transactions more efficient and secure. Smart contracts allow parties to specify the terms of an agreement and ensure that those are immutable and transparent.”

Reyes adds that the traceability of ownership for documents and agreements stored within smart contracts makes security tighter. Apart from this, the researcher notes that transaction settlement within blockchains is a lot faster and reduces friction.

Apart from global trade, Reyes thinks that tokenization helps in the aspect of financing as well. This may add benefits for small and medium enterprises (SMEs) in the form of access to capital.

“Tokenizing trade finance assets can facilitate access to capital for SMEs looking to trade as well as investors searching for yield, matching supply and demand more efficiently.”

Reyes also cited XDC Network as an example. “The smart contract transactions feature a digital coin, XDC, which represents the value of off-chain, bank originated assets that have yield generating capabilities,” says Reyes.

The research head believes that this is a way to “break through barriers” and give SMEs access to financing that’s outside of the sphere of the traditional financing system. Reyes notes that this “can also increase competition among lenders.”

Adding to the topic, the Bequant head of research also discussed the rise of hybrid protocols and what sets them apart.

“As more institutions take an interest in DLT, and they are often required to keep the information in their transactions private, this can present a dilemma in using a public blockchain. Some institutions are even creating their own private centralized blockchains. This is where a hybrid model becomes useful.”

Reyes notes that within hybrid networks, transaction details can be private while limiting data that’s given to the public network for the confirmation of the transaction. According to Reyes, “The technology combines the speed of private blockchains with the security of public ones, drawing on the strengths of both while minimizing any disadvantages.”

Updated: 3-2-2022

LendingClub CEO Plots Path Around Crypto As Firm Builds Out Bank

* Sanborn Says ‘Speculative Asset’ Isn’t Right For Everyone
* Online Lender Is Adding Products After Radius Acquisition

LendingClub Corp. is resisting pressure from stakeholders to jump into cryptocurrency as it completes a bank acquisition and works to introduce more traditional financial products.

“Look, the customer demand is there, but my view — our view — is if you’ve got $15,000 in credit-card debt, the thing you should do with your next $500 is not buy a speculative asset,” Chief Executive Officer Scott Sanborn said Tuesday in an interview at Bloomberg News headquarters in New York. “We recognize we could be leaving some consumer demand on the table.”

Sanborn, who took over in 2016, is laying out a new path for the peer-to-peer lender after its $185 million acquisition last year of Radius Bancorp Inc. LendingClub has been expanding offerings, including high-yield savings accounts and certificates of deposit. That doesn’t leave a lot of room for a crypto initiative, Sanborn said.

“I don’t want to get distracted,” he said. “Back half of the year, into next year, we’ll be focusing on the mobile-banking experience.”

The San Francisco-based financial-technology firm has retained part of its marketplace that matches borrowers with institutional investors, while ditching the portion allowing retail investors to lend money.

LendingClub expects to keep more loans on its balance sheet, earning three times as much as the debt it chooses to offer through the marketplace, Sanborn told Bloomberg TV.

Rival startups including Affirm Holdings Inc. and PayPal Holdings Inc.’s Venmo are either working on or already are offering crypto options. LendingClub has chosen instead to focus on its expansion, including introducing more savings products, and on the relocation of its servicing center to Utah as it continues to work through the Radius acquisition.

“We’re still digesting the bank,” Sanborn said of the firm’s appetite for M&A. “We have a really good use of our capital right now, which is putting it in the balance sheet. I know what that return is — it’s really high — and it’s really straightforward. But as we fully mature into that, we’re certainly going to be generating a lot of capital.”

Updated: 3-9-2022

Crypto.com Gives Users In Excluded Countries One Week To Repay Loans

The decision by Crypto.com comes just within a month of BlockFi’s $100 million penalties for its lending products, as many speculate regulatory clampdown could be the potential reason behind the decision.

Crypto.com is reportedly giving users from countries restricted from its loan program until March 15 to repay their crypto loans.

The firm updated the list of restricted countries to include the United States, the United Kingdom and 38 others. Users from European nations such as Germany, Switzerland and the U.K. have all shared emails from the company regarding the loan closure date. It‘s worth noting that some of these users who do not have crypto loans on the platform have also received the emails.

According to the new policy, if users fail to repay their loans by March 15, their collateral will be sold and loan positions will be closed by the exchange. Crypto.com didn‘t respond to Cointelegraph‘s requests for comments at the time of writing.

The sudden policy change has left Crypto.com customers anguished and in disbelief, with many claiming that the exchange‘s recent splurge on advertisements and marketing has started to take a toll on its balance sheet. The exchange‘s aggressive marketing splurge over the past year has raised many eyebrows, given the company, unlike many other crypto unicorns, hasn‘t raised much capital from investors.

A THREAD ON @cryptocom @cryptocomcs @Kris_HK

It looks like the splurge in marketing is starting to take it’s toll on the balance sheet

I have a fair amount of #XRP – for sure not where my *BAGS* are, but… pic.twitter.com/quLEKNiAEK

— XRPGLOBAL (@xrp_ninja) March 8, 2022

Crypto.com’s marketing budget, which includes millions being spent on celebrity endorsements, buying of arenas and much more, have been a topic of discussion on the internet for a long time. However, the sudden change in its lending policy has only made the theory more prominent.

Crypto lending products have been under regulatory scanner for over a year now, with several crypto firms getting a security violation notice from respective state regulators. Gemini and Celsius offered lending products that came under U.S. Securities and Exchange (SEC) investigation in January, while BlockFi was slapped with a $100 million penalty for offering unregistered crypto lending products in February.

Updated: 3-16-2022

NY Fed Staffer Jumps Into DeFi As Euler COO

A permissionless lending protocol has brought on a former Federal Reserve employee in a key position.

DeFi’s latest headline hire comes from an unusual source: the Federal Reserve Bank of New York.

On Wednesday, permissionless crypto lending protocol Euler Finance announced the appointment of Brandon Neal as chief operating officer.

Neal spent 10 years at the New York Fed in a variety of roles, including most recently with the Markets Trading Desk, or what Neal called “the tip of the spear in implementing monetary policy” in an interview with CoinDesk.

The career transition was facilitated in part by Dave White, a protocol design specialist at crypto venture giant Paradigm and a friend of Neal’s who turned him on to novel concepts in decentralized finance – such as flash loans and automated market makers – over lunch.

Afterwards, Neal began more deeply researching the space and eventually met the team at Euler, where he was impressed with the group’s deliberate and iterative approach designed to mitigate the risks associated with permissionless finance.

At @eulerfinance we introduced a oracle risk grading system to rate riskiness of Euler pools.

Risk awareness of DeFi price oracles helps incentivise more liquidity in markets & helps users better manage risk.

Here’s a thread based on our latest article:https://t.co/QRYsuxsmdy

— Seraphim.xyz (@MacroMate8) January 4, 2022

“Of all the teams I spoke with I was excited most about the team at Euler – having a super, super robust risk management system, carefully designed and built and thoughtfully implemented, is paramount,” said Neal.

In December, Euler founder Michael Bentley told CoinDesk that the protocol’s growth would be a process and not an event. The platform currently accounts for $52 million in total value locked (TVL), per DefiLlama.

“From our perspective, we’re really focused on managing risk – I don’t want to target some total value locked number we can market to people,” Bentley said.

‘Bloated’ Industry

Neal told CoinDesk that he believes decentralized finance (DeFi) has the potential to significantly shake up the finance world.

“If we zoom out and look at what finance is supposed to do, it was always meant to be the oil that greases the wheels of real industry.

It was never meant to become a wheel unto itself that employs an excessive number of people and becomes rent-seeking, to use an economics term. But it’s become that – the financial industry is bloated, it’s not innovative, and there’s valid arguments that it’s stuck,” he said.

He admitted that a “handful” of his former colleagues think he’s crazy for the career shift, but many of them are coming around to the promise of the DeFi sector, particularly as new use cases develop.

“Everybody is rightfully skeptical. People who work at the Fed are skeptics by nature – it’s evidence-based, and you look at outcomes,” said Neal, adding:

“There are elements of hype in crypto that can often drown out the real, deep innovation happening by serious, thoughtful teams. Those people are the loudest in the room sometimes, and the thoughtful builders who are meticulously and carefully innovating, they’re just really quiet.”

Updated: 3-19-2022

BlockFi Confirms Unauthorized Access To Client Data Hosted On Hubspot

As a third-party vendor for BlockFi, Hubspot stored user data such as names, email addresses and phone numbers, which has been historically used for conducting phishing attacks.

New Jersey-based crypto financial institution BlockFi confirmed a data breach incident via one of its third-party vendors, Hubspot. BlockFi’s proactive warning about the breach aims to deter the intentions of bad actors in repurposing the user data for fraudulent activities.

According to the announcement, the hackers gained access to BlockFi’s client data on Friday, March 18, that were stored on Hubspot, a client relationship management platform:

“Hubspot has confirmed that an unauthorized third-party gained access to certain BlockFi client data housed on their platform.”

As a third-party vendor for BlockFi, Hubspot stored user data such as names, email addresses and phone numbers. Historically, bad actors have used such information for conducting phishing attacks and gaining access to accounts through user-provided passwords.

Regarding recent third-party data incident: pic.twitter.com/50z7IrQ1za

— BlockFi (@BlockFi) March 19, 2022

At the time of writing, BlockFi is supporting Hubspot’s investigation to gain clarity on the overall impact of the data breach. While the exact details of the breached data are yet to be identified and revealed, BlockFi reassured users by highlighting that personal data — including passwords, government-issued IDs and social security numbers — “were never stored on Hubspot.”

In addition, BlockFi has also confirmed that its internal system and client funds were not accessed and that the breach remains limited to the third-party vendor, Hubspot.

The company further recommended four methods to help users protect their online presence from bad actors — good password hygiene, two-factor authentication (2FA), allowlisti trusted applications and vigilance against scammers.

On an end note, BlockFi acknowledged that time is of the essence and are expediting their investigations to identify the extent of the breach:

“Additional information will be emailed to all impacted clients in the coming days.”

Investors are advised to be wary of all company communication, especially that demand urgency in requesting/changing personal details including passwords and wallet addresses.

On Friday, March 18, the recently launched nonfungible token (NFT) project “Rare Bears” was attacked, resulting in a theft of nearly $800,000 in NFTs.

As Cointelegraph reported, the attack was conducted by a hacker who posted a phishing link in the project‘s Discord channel and eventually stole 179 NFTs.

Warning @BearsRare
Discord has unfortunately been compromised. Please DO NOT click any links, connect your wallet and block all incoming DMs in our discord. Our team are working on the situation as we speak

— Rare Bears (@BearsRare) March 17, 2022

Updated: 3-23-2022

Crypto Lender Nexo Spins Out $150M Venture Arm For Web 3 Investments, Acquisitions

Nexo Ventures will be active in Web 3, decentralized finance innovation, NFTs, metaverse and GameFi.

Cryptocurrency lender Nexo established a venture arm with $150 million for Web 3 projects and acquisitions.

* Nexo Ventures will invest in Web 3, decentralized finance (DeFi) innovation, non-fungible tokens (NFT), metaverse and GameFi as well as payments and trading infrastructure and compliance services, the firm announced Wednesday.

* The division will be led by Tatiana Metodieva, Nexo’s head of corporate finance and investments.

* Nexo Ventures will also “explore the feasibility of enabling Nexo’s users to invest alongside us, thereby leveraging our capabilities to facilitate investor diversification and wealth maximization,” Metodieva said in the statement.

* The Web 3 ecosystem has become an area of interest for investors in the crypto and blockchain industry, with several similar funds emerging in recent months. In December, Hashed raised $200 million for Web 3 ecosystem development, and in March Griffin Gaming Partners announced a $750 million fund.

* Gaming, in particular, has attracted industry heavyweights, with crypto exchange FTX last year investing $100 million to fund gaming studios that integrate the Solana blockchain into games. The fund was raised alongside Solana Ventures and Lightspeed Venture Partners.

Figure Technologies Reveals Crypto-Backed Mortgage Products

Potential customers can now join the waiting list ahead of the launch next month.

Blockchain lending startup Figure Technologies unveiled Crypto Mortgage and Crypto Mortgage PLUS, both of which allow users to borrow against their bitcoin (BTC) or ether (ETH) to fund home purchases.

* “Any amount up to $20 million, for a 30-year mortgage,” said co-founder Mike Cagney on his LinkedIn page. The loans will also be 100% loan-to-value (LTV), i.e. “you put up $5 million in bitcoin or ether, we give you a $5 million mortgage.”

* Payments, he said, can be made via the borrower’s crypto collateral, and Figure will not rehypothecate customer crypto. Mortgages will be available as soon as next month, and potential customers can now get on a waiting list.

* The company website offers a bit more detail, with the Crypto Mortgage product being much as described above by Cagney, and the Crypto Mortgage PLUS option allowing customers to borrow up to 50% of their crypto value to make a 20% down payment, with the rest of the purchase funded with a conventional mortgage.

* Figure processes loans on its proprietary Provenance Blockchain. The company’s most recent funding round was last May, when it raised $200 million at a $3.2 billion valuation. Among the investors were 10T Holdings and Morgan Creek Capital Management.

Updated: 3-30-2022

Voyager Ordered By New Jersey To ‘Cease And Desist’

New Jersey’s move is just the latest in a series of orders and complaints against crypto-based interest-bearing account issuers in the United States.

The New Jersey Bureau of Securities has issued a cease and desist order against Voyager Digital for selling unregistered securities through its Voyager Earn program.

Voyager Digital (VGX) is a centralized, crypto-based staking, trading, and lending platform.

The order claims that each of the crypto staking and lending accounts issued through the program since 2019 is anunregistered security because of their promise of interest rates as high as 12%.

The Bureau cites as evidence for the claim messages on Voyager’s homepage encouraging users to “grow your portfolio” and “journey to the new frontier of investing.”

New Jersey claims that about 52,800 accounts and $187 million in assets are from users based in the state, out of roughly 1.5 million active accounts and $5 billion in assets on Voyager in total.

Voyager’s marketing tactics were also criticized, with the regulators stating promotions for the program failed to disclose that Voyager’s parent company Voyager Digital LLC is a publicly-traded company in Canada, not the United States. The order claims that this “creates a misleading impression with respect to Voyager Digital, LLC’s regulatory status.”

The Bureau also alleges that while Voyager claimed to be licensed, it was only licensed in some states to act as a “money services business,” which the Bureau states does not allow for the sale of unregistered securities. It added the claim “may convey the misleading impression to unsophisticated investors that Voyager is “licensed” to offer and sell such securities.”

At least five other states, Alabama, Oklahoma, Texas, Kentucky, and Vermont, have slapped Voyager with various orders or demanded the company explain how it is not issuing unregistered securities if it wishes to stay in business in their respective states.

This incident is one in a growing list of such cases or orders against crypto companies that offer interest-bearing accounts to users. In February, crypto lending platform BlockFi was hit with a similar cease and desist order from Washington state and a $100 million penalty for selling unregistered securities in the form of its interest-bearing accounts.

Last September, the Securities and Exchange Commission (SEC) threatened to sue crypto exchange Coinbase if it launched its long-awaited Coinbase Lend program.

This program would have resembled Blockfi and Voyager’s interest-bearing accounts for crypto lenders. At the time, Coinbase CEO Brian Armstrong called the SEC’s behavior “really sketchy,” as the threat came without any legal overtures.

Updated: 4-12-2022

Celsius Bans New Transfers By US Nonaccredited Investors From Earning Crypto Rewards

In the U.S., only accredited investors and those with coins already in the Earn platform will be able to earn rewards.

Cryptocurrency lender Celsius is banning new transfers from nonaccredited investors on its U.S. platform from earning rewards on its program effective Friday.

* Starting April 15, only “accredited” U.S. investors will be able to add new assets and earn rewards on Celsius’ Earn platform, said the company. To be deemed accredited in the U.S., investors must have a minimum annual income of $200,000 or a net worth over $1 million.

* The company said all existing U.S. users – whether accredited or nonaccredited – will continue to earn rewards as long as the coins are in their Earn account prior to April 15.

* Those deemed nonaccredited will have their coins held in custody, where they won’t earn rewards but can continue to swap, borrow and transfer within those custody accounts based on their local jurisdiction.

* “As we previously have acknowledged, Celsius has been working closely with regulators around the world. It is our intention to be as transparent with our community as possible,” the company said in a blog post Tuesday.

“More specifically, we have been in ongoing discussions with United States regulators regarding our Earn product. As a result, there will be changes to the way our Earn product will work for users based in the United States.”

* U.S. users wishing to post coins as collateral against a loan opened prior to April 15 will see their assets returned to their accounts when the loan is repaid, the company added.

* The company is currently facing several legal investigations from regulators in various U.S. states on allegations its lending and earn programs might be in violation of securities laws.

* CEL, the native token of the Celsius Network, is trading at $2.62 at press time, down from $2.69 24 hours ago, according to Messari.

What Is Crypto Lending, And How Does It Work?

The borrower and the lender are two distinct actors in the crypto lending transaction. Borrowers put up cryptocurrency as collateral to secure a loan from a lender.

The COVID-19 pandemic had a deleterious effect on the returns from the conventional instruments of investments such as stocks, gold and real estate, driving investors in hordes toward crypto.

Individuals and institutionalized investors alike have tried their luck in the industry that has rolled out decent returns even during the worldwide economic slump that horrified many investors.

Despite an intense debate raging about cryptocurrency offering a great window to grow wealth with alacrity and its extremely volatile ways, there is no denying the fact the industry has grown rapidly over the last two years. It is still innovating, trying different ideas and breaking more barriers in the process. One of these areas is crypto lending.

What Is Crypto Lending?

Crypto lending is an ingenious instrument to obtain the cash you need quickly, as it allows you to utilize your crypto holdings as security to get secure loans. If you are wondering how do I borrow crypto, collateralized crypto lending is a viable solution. It allows borrowers to use their crypto assets as collateral to get a fiat or stablecoin loan.

This enables you to get the money without having to sell your coins, use the cash to fulfill your objectives and then repay to get back the hold on your assets. Crypto loans allow you to use digital assets you hold to generate dividends by lending out part or whole of the holdings.

Crypto lending platforms play a key role in dispensing such loans. Generally, you can borrow up to 50% of the value of your digital assets, though some platforms might allow you to borrow even more.

Crypto loans generally don’t have a concept like EMI and borrowers may repay when they can before the fixed term ends. As for the interest rates, it is approximately 4% on Celsius Network on popular non-stablecoin cryptocurrencies.

As for the question, is lending crypto profitable, it depends on a string of factors. If you default on your debts, you end up losing your assets.

Inconsistencies integral to crypto assets have led to more takers to stablecoin lending. On Celcius Network and Nexo, stablecoin lenders can earn 8%, while on Compound Finance — a decentralized crypto lending platform — the lending annual percentage rate (APR) for Dai (DAI) and USD Coin (USDC) is 12% and 9%, respectively.

How Does Stablecoin Lending Work?

When it comes to interest rates, peer-to-peer (P2P) lending and borrowing models are closely influenced by the supply and demand scenario. A high volume of loans coupled with a low supply from lenders means high returns for lenders.

However, if the demand for crypto loans is low and the supply from lenders is high, the interest rate for borrowers will be low to attract the borrowers.

If you are considering why do stablecoins have high-interest rates, this section may come across as quite informative. The principle idea of supply and demand leads to stablecoin lending, providing annual returns in double digits. Stablecoins are still a budding industry, being just 2-3% of the total crypto market capitalization.

On the lending platforms, a substantial amount of the lending supply comes from stablecoins. Many buy these coins only to lend them on these platforms, but it’s alarmingly low compared to the supply of the top cryptocurrencies. Take the case of Compound Finance, where Ether (ETH) has 50% more gross supply than DAI and USDC combined.

Contrast it with the demand and you will find the figures are staggering. On Compound Finance, the demand for DAI trumps that of ETH by nearly 40 times. Large institutional traders and cryptocurrency payment processors are behind the huge demand for DAI. Institutional traders include the hedge funds and market makers clubbing on crypto loans for speculation purposes.

How Does Crypto Lending Work?

Just like a securities-based loan, a cryptocurrency-backed loan collateralizes digital currency. Basically, it resembles a mortgage loan. You give hold of your crypto assets to get the loan and repay it over a predetermined time.

These types of loans can be obtained through a crypto lending platform or a crypto exchange. Though you still retain ownership of the collateralized crypto, you forego the right to make transactions using digital coins.

Crypto loans come across as a viable option because of several advantages such as low interest rates, choice of loan currency, lack of credit check, fast funding and the ability to earn passive income on your crypto that is otherwise lying idle. Moreover, you can lend your own digital coins and receive a high APY (more than 10%) on several crypto platforms.

All crypto lending transactions have two distinct parties: the borrower and the lender. It is for the borrower to deposit crypto assets as collateral to secure the loan from the lender.

The arrangement works to mutual advantage, as the borrower receives an immediate loan in return for their crypto assets while the lenders earn interest on the amount released as a loan. If the borrower defaults, they dispose of the underlying crypto assets to realize their money.

Steps Of Crypto Lending Explained

Whether you are looking for crypto lending on Binance, Coinbase or any other platform, the basics remain the same. Borrowers have to go through the following steps.

For The Lenders, The Steps To Lending Are Provided: 

Things To Know Before Getting Into Crypto Lending And Borrowing

Crypto lending is a replication of collateralized loans in fiat. You need to be careful of a few factors when dealing in cryptocurrencies.

Should You Lend Crypto?

You may be eager to know if crypto lending is safe. Before you go active on a crypto platform as a lender, make sure you are well-versed with the specifics. When you move your crypto to any platform for lending, they hold access to the keys to the cryptocurrency — not you.

You just have the bond issued by the smart contract. Check the auditing standards of the smart contract, the history of the project and its team can help you guide your decisions.

If you begin lending with your eyes closed, do not be surprised if your crypto disappears. QuadrigaCX, for instance, is nothing less than a horror story. A Netflix documentary discussed the suspicious death of Gerald Cotton, the founder of QuadrigaCX, the Canadian cryptocurrency exchange and how he misappropriated customer funds. About $190 million worth of digital assets kept on the exchange were lost.

To sum up, you need to do your due diligence before taking a call on the platform you’d be using for lending and borrowing. Regardless of the lending platform, knowing your game and limitations is extremely important when it comes to successful innings. A mistake might prove costly, so better put in the best of your exploratory skills to work.

Updated: 5-11-2023

BlockFi Crypto Customers Lose Fight Over Disputed Coin Transfers

* Bankruptcy Judge Rules Transfers As Of Nov. 10 Are Void

* Ruling Makes Losses More Likely For Interest-Bearing Accounts

BlockFi Inc. customers who tried to reclaim nearly $300 million in crypto after the company froze transfers last year don’t have a right to the digital assets, a judge ruled, handing potential losses to investors who held interest-bearing accounts.

US Bankruptcy Judge Michael Kaplan sided with the company and dismissed the objections of a group of customers, who argued they retained rights to the coins even before they were moved into a secure, digital wallet.

Those who kept their assets in interest-bearing accounts gave up certain ownership rights, while those in custodial accounts did not. To protect themselves around the time of the freeze, users rushed to move coins into the safer digital wallets.

BlockFi, which is based in Jersey City, filed for bankruptcy in November with plans to either sell or reorganize its business to repay creditors. The ruling is similar to those made in other crypto-company bankruptcies.

A federal judge in New York ruled that Celsius Network owns the coins that users placed in interest-bearing accounts.

Kaplan found that BlockFi stopped all transfers on Nov. 10 at 8:15 pm. Some customers tried to move their assets to safer, custodial wallets afterward and got messages on the company’s app saying the transfer was complete — but those notices were wrong, Kaplan ruled during a short court hearing Thursday.

“The user interface did not accurately reflect the transactions,” Kaplan said.

About $292 million worth of assets were trapped on the platform because customers tried to move them after the Nov. 10 halt, BlockFi said in court papers. Those transactions can now be canceled by the company, Kaplan ruled.

The disputes revolve around a central question in the biggest crypto company bankruptcies: Who owns the digital coins and other assets that customers deposit on the unregulated platforms?

In the Celsius case, a judge in New York ruled that for about 600,000 customers do not own the assets they put into their accounts because of the way the user agreements were written.

The case is BlockFi Inc., 22-19361, U.S. Bankruptcy Court for the District of New Jersey (Trenton).

BlockFi Customers Can Be Repaid $300M Held In Custodial Accounts, Judge Says

A further $375 million that users tried to transfer out of interest-bearing accounts after Nov. 10 still belongs to the estate, Bankruptcy Judge Michael Kaplan said.

BlockFi custodial wallet users can be returned nearly $300 million, as a New Jersey judge ruled on Thursday May 11 that assets sitting in the wallets belong to clients rather than the estate of the bankrupt crypto lender.

Bankruptcy Judge Michael Kaplan ruled against repaying a further $375 million in funds that clients tried to withdraw from BlockFi’s interest-bearing accounts, known as BIA, after the company froze funds last year, as ripples from the collapse of FTX spread through the crypto ecosystem.

“The court finds that all digital assets held by the debtors in custodial omnibus wallets are indeed client property, and not property of the bankruptcy estates, subject, of course, to possible avoidance and clawback rights,” Kaplan said, but had less happy news for BIA customers.

“No transfer request by customers between the BIA and the custodial wallet accounts initiated after 8.15 pm on November 10, 2022 were effectuated and completed,” Kaplan said, despite the crypto company’s user front-end appearing to confirm that they had successfully shifted funds.

“BIA account holders deposited their assets into these accounts with the full knowledge that they were undertaking certain risks in exchange for the chance of greater returns,” he said, but custodial wallet holders “did not share this risk or return and should not have their ownership of non estate property diluted by those who took on such risks.”

Under bankruptcy law, funds which are deemed to belong to customers can be returned immediately, rather than being divided up among creditors of the company’s estate.

In this case reimbursement was held up by a dispute over the status of funds held in BIA which customers tried to liquidate after Nov. 10, when BlockFi paused transfers, and Nov. 18, when it made corresponding changes in the app.

At a hearing held Monday, Deborah Kovsky-Apap of law firm Troutman Pepper argued that her clients – who all attempted to transfer BIA holdings in that interim period – should be included in any repayment.

It’s “not fair to be able to ignore the plain language of the terms of service” that promises transactions will happen instantly, Kovsky-Apap said, adding that BlockFi was effectively trying to discriminate in treatment among customers who were all in the same situation.

Michael B. Slade, representing BlockFi, said that no sale of the assets had been completed, even though those clients received email confirmation that it had, as the user interface had been “deliberately divorced” from underlying transactions.

BlockFi filed for Chapter 11 bankruptcy on Nov. 28, 2022, a few weeks after FTX, from which the crypto lender had sought a bailout in June.

Updated: 5-14-2023

BlockFi – Chapter 11 Disclosure Statement

Dear Customer,

Earlier today, BlockFi filed our Disclosure Statement with the Court. We encourage all creditors to read the Disclosure Statement in full, which can be found here.

This is an important step forward in our Chapter 11 cases toward our goal of maximizing recoveries for our clients and all creditors. The Disclosure Statement outlines our financial operations and information, and also our proposed Chapter 11 Plan.

The purpose of the Disclosure Statement is to provide clients with the information you need to make an informed decision about whether to vote for the Plan. You can expect more information about the voting process to follow in the coming weeks.

We believe that the Plan is the fastest way for clients to receive the highest recovery of digital assets and conclude the Chapter 11 cases as quickly as possible.

The disclosure statement provides information about a ”self-liquidation transaction” through which we will directly distribute assets to creditors. The disclosure statement describes the following key features of the plan, among others:

* Projected Recoveries: The disclosure statement provides a table of projected recoveries categorized by type of claim. While recoveries will be based on a number of factors, the largest driver of higher recoveries are BlockFi’s claims against Alameda and FTX.

* Timing of Distributions: After the initial distribution of assets, BlockFi will continue pursuing claims and causes of action against Alameda and FTX, among other commercial counterparties, to maximize recoveries for clients.

* Wallet Clients: The plan provides for the return of those non-estate digital assets held in client wallet accounts in connection with the wallet program in full, subject to applicable set offs.

* Client Releases: Clients will receive a release from BlockFi for any clawback claims that could be brought against them, including for transfers made prior to the platform pause on November 10, 2022.

Our disclosure statement follows months of work to determine the value maximizing path forward embodied in the plan that we believe will be best for our clients.

We prioritized putting forward a plan that emphasized client recoveries, speed of distribution, and asset safety and security. We decided that utilizing our existing platform to distribute funds was aligned with that goal.

As a next step in the process, we will be presenting our disclosure statement to the Court on June 20, 2023, for approval. Upon approval of our disclosure statement, the solicitation process will commence. During this period, the disclosure statement will be sent to certain BlockFi clients and other creditors asking them to vote to accept the plan.

Additional information will be shared about the voting process upon approval of our Disclosure Statement by the Court.

You can find additional information about our disclosure statement on the FAQ blog. Information regarding our cases, including Court documents and claim information, can be found by visiting BlockFi’s claims agent, Kroll, at https://restructuring.ra.kroll.com/blockfi.

Thank you

BlockFi

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