The crypto lending platform the blockf will pay the US Securities and Exchange Commission (SEC) $100 million after settling claims that the company violated securities law through its interest account offering. The settlement represents the largest recorded penalty ever incurred by a crypto firm, as reported by Axios.
the blockf will pay $50 million of the fine directly to the SEC and another $50 million in the form of fines to 32 US states to resolve similar charges, according to the SEC statement.
“Compliance with our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space,” said SEC Chief Compliance Officer Gurbir S. .grewal.
the blockf it has raised $450 million in funding from investors since its inception. His last round was a Series D of 350 million last March that valued the company at 3 billion, led by Bain Capital Ventures, partners of DST Global, Pomp Investments and Tiger Global.
The interest rates applied allowed users to earn a monthly interest payment of up to 9.25% on the cryptocurrency they held, according to the blockf. According to the new SEC ruling, the accounts of the blockf they are considered securities because their users lend money to the company.
the blockf it also operated illegally for 18 months as an investment firm, the SEC said. During this period, the company issued securities and reached an asset-based threshold that qualified it as an investment firm, despite not being registered as such.
In addition to registration issues, the SEC claims that the blockf misled investors about the level of risk in its loan portfolio and lending activity.
As part of the agreement, the blockf agreed to discontinue sales of its unregistered loan product. Also announced your intention to register a new compatible credit product, called BlockFi Performance which he says would be the first interest-bearing crypto security registered with the SEC.
The news is a major blow to the emerging decentralized finance (DeFi) ecosystem, according to digital asset lawyer Max Dilendorf, saying that the SEC has essentially “eliminated” the DeFi lending business model with its action against the blockf.
If a cryptocurrency company wanted to continue selling interest-bearing DeFi products, it would have to essentially become a publicly traded company by filing an S-1 registration statement, Dilendorf said. Filing an S-1 is equivalent to launching an initial public offering (IPO), which can be an expensive process, requiring investors buying DeFi products to be accredited unless they seek (and win) specific exemptions, he added.
“The S-1 registry does not support DeFi at all. The only reason why the blockf was successful is because it had a lot of individual users who just plugged in their Metamask wallets or whatever they had, and they earned interest,” Dilendorf said.
For smaller players, the regulatory burden of the new rules and their associated cost could be overwhelming.
"the blockf it can probably afford to go ahead with the securities offering once registered although the outcome is not certain, because it is a 3 billion company,” Dilendorf said. “What about a smaller DeFi protocol? They will be removed if they become targets of similar enforcement action.”
