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Cryptocompanies are seeking clearer US rules for their interest-bearing products



(Reuters) – Currency companies said they were still unsure of US rules governing products that allow customers to earn interest on holdings instead of trading with them, months after such an interest-bearing product was fined $ 100 million by a federal regulator and state governments.

In February, New Jersey’s cryptocurrency firm BlockFi agreed to pay $ 100 million in a landmark settlement with the US Securities and Exchange Commission and government officials who said its interest-bearing product qualified as a security and should have been registered.

Nevertheless, many digital access companies providing such products this month said that the rules remain unclear to them and that they are unsure when to register such offers, which are becoming more popular and which many companies launched in the past year.

Most companies have tried to structure the interest-bearing products to avoid the need to register them with the SEC, a process that takes time and entails ongoing disclosure and reporting obligations. That effort could prepare them for a conflict with the agency as it increases scrutiny of the crypto industry.

BlockFi plans to offer an alternative product, which it said it would register first. The company and the SEC said the deal should provide a roadmap for other companies.

“Our resolution with the SEC is a key step in achieving regulatory clarity for not only BlockFi but for the crypto ecosystem as a whole, which is necessary for long-term mass adoption of crypto-financial services,”

; a spokesman for BlockFi said in a statement.

Industry executives said the SEC should clearly define what constitutes a security rather than using enforcement measures to set boundaries.

SEC registration of cryptocurrencies is “not always a path that others can take for different circumstances,” said Nicholas Losurdo, a partner at Goodwin and former adviser to the recently resigned SEC commissioner Elad Roisman. “The better way would be for the SEC to actually just formulate a clear message about what it expects.”

Securities, unlike other assets such as commodities, are strictly regulated and require detailed disclosures to inform investors of potential risks. The Securities Act of 1933 described a definition of the term “security”, but many experts rely on two cases in the US Supreme Court to determine whether an investment product constitutes a security.

The SEC did not respond to a request for comment, but SEC President Gary Gensler has said that most cryptocurrencies are securities by definition in these cases. Many in the industry do not agree and refer to other interpretations of the law.

Gemini, a crypto exchange, offers an interest-bearing crypto product approved by the New York State Department of Financial Services. Noah Perlman, chief operating officer at Gemini, said that approval distinguishes it from BlockFi’s product and means that the deal did not affect them.

“You have an industry that wants to work with regulators, and yet you have regulators who are not in the habit of giving advisory opinions,” he added.

The state regulators who ordered BlockFi to stop offering its product issued a similar order in September to the crypto company Celsius Network, calling its Celsius Earn product an unregistered security. CEO Alex Mashinsky did not say whether Celsius would register the product, but told Reuters earlier this month that he was not worried that the SEC would sue because Celsius is a “much more conservative company than BlockFi.”

He also said that BlockFi “did not hurt anyone” with its product.

Since that interview, Celsius has stopped accepting new transfers to its Earn accounts from US private investors. The company did not respond to further requests for comment.

Several crypto companies are considering limiting their offerings so that they would clearly be exempt under the SEC registration rules, says Richard Levin, chairman of fintech and regulatory practices at Nelson Mullins.

Circle Internet Financial, for example, only offers its return instruments to institutional investors.

“If a return product pays dividends to consumers, it will most likely be treated as a security. We agreed with that when we structured Circle Yield,” says Dante Disparte, Strategy Manager at Circle.

Coinbase, the US’s largest crypto exchange, scrapped plans to launch a crypto loan product after the SEC threatened to sue in September.

Some crypto companies said they were cautious in light of the SEC’s harsh stance.

Kraken, for example, would like to offer an interesting product, but the company is cautious because the SEC has not provided guidance, says Marco Santori, the company’s general counsel.

Bitstamp, a cryptocurrency exchange licensed for virtual currency in New York, hopes to offer a return product to US institutional investors, but believes it may need additional licenses and approval from New York regulators.

“Some cryptocurrencies in the United States have run into major problems with how they have handled lending and credit-type offers,” said Bobby Zagotta, CEO of Bitstamp USA. “We do not want to go there, so we should be super diligent.”


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