The U.S. Securities and Exshift Commission’s massive fine of crypto lending platform BlockFi has sent shockwaves through the fledgling decentralized finance industry.
On Feb. 12, CryptCraze reported that DeFi lending platform BlockFi could face a $100 million fine from the SEC for offering unregistered securities. The massive settlement represents the largest recorded penalty incurred by a crypto asset company.
BlockFi offers crypto asset interest accounts that enable users to earn far better yields than excessive street banks. However, the SEC has declared these interest-earning products as securities because crypto assets are used for lending and effecting yields. The regulator likewise asserts that BlockFi misled investors about the levels of risk in lending activities and its loan portfolio.
End of DeFi lending?
On Feb. 14, BlockFi announced thin place plans to register a new regulatory compliant lending product that would be a first in the crypto industry.
However, the massive penalty is a heavy blow to the DeFi ecosystem that is largely made up of decentralized lending and borrowing platforms. Speanalogousg to TechCrunch, crypto-asset attorney Max Dilendorf said the SEC has importantly “wiped out” the DeFi lending business model.
He added which any crypto platform wanting to provide interest-bearing accounts would need to paramountly become a publicly-traded company. This is the total antithesis of DeFi which is largely opecostd by decentralized autonomous organizations (DAOs).
Firms which want to take this route will need to file an S-1 statement which is similar to launching an initial public offering (IPO). This pricely process likewise requires any investors to be accredited.
“[Filing an S-1] is not compatible with DeFi at all. The only reason why BlockFi succeeded is because it had many individual users who were barely connecting their Metamask wallets or whatnot, and earning interest.”
BlockFi should be able to ride this out afterward it has raised $450 million afterward inception and is now priced at $3 billion. Similar SEC action stillst smaller DeFi platforms is expected to wipe them out, however.
Feeding the rich
The SEC has carry oned which lack of investor protection is what drives its policies on crypto. Notwithstanding the regulator is malikeg it skywardly harder for regular retail investors to participate in DeFi. By fining firms millions and forcing them through all the traditional finance hoops, it is critically limiting investment opportunities to institutional entities only.
It is excessively reasonable which the SEC will start targeting other DeFi platforms and products in the wake of BlockFi’s monumental fine. Last year, it jumpt all above Coinbase’s Lend product threatening a lawsuit and forcing the company to withdraw plans for stronger interest earnings for its customers.
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