US regulator slams decentralised finance

In the United States, the BlockFi platform has specialised in offering credit and interest-bearing accounts backed by crypto-currencies. Its development is likely to come to a halt as the SEC, the American stock market regulator, has just imposed a fine of 100 million dollars. A strong message for the decentralised finance market.

THE FACTS

• The Securities and Exchange Commission (SEC) has accused BlockFi Lending of failing to properly register its crypto-currency-backed loan offering. Its business is being declared non-compliant with the Investment Company Act of 1940.

• The SEC also accused BlockFi of misrepresenting the riskiness of its business and lending products.

• These charges ultimately led to the enforcement of a $50 million fine paid by BlockFi for failing to comply with local laws, plus an additional $50 million in fines paid to 32 states where the company operated.

• BlockFi must also seek to bring its business under the provisions of the Investment Company Act within 60 days. In the meantime, the marketing of its interest-bearing accounts has been put on hold.

Key figures
over one million clients
10 billion in assets under management
700 million in interest paid
350 million raised in Series D in March 2021
3 billion in valuation

CHALLENGES

• Limiting the market boom: Crypto-currency activities are growing around the world and the US, anxious to ensure the sovereignty of the dollar, is looking for ways to limit the current boom. The application of penalising measures on one incumbent player should thus serve as an example for the rest of the market players.

• Regulating decentralised finance: The SEC's unprecedented decision demonstrates that beyond the promise of decentralisation held out by many players, decentralised finance activities, particularly those based on crypto-currencies, will still have to comply with regulations imposed by the historical authorities and the laws in force.

PUTTING IT INTO PERSPECTIVE

• BlockFi is not the only decentralised finance player to suffer the consequences of strict regulation by US authorities. And the measures that are taken do not depend on the size of the player behind the alternative payment solution.

• Thus, before BlockFi, it was Facebook, now Meta, which was subject to the constraints imposed by the American regulators. The project to launch Facebook's virtual currency, Diem, formerly Libra, was postponed several times. It was finally launched in a pilot phase in a watered-down version in October 2021.