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After Targeting BlockFi, State Regulators Now Set Their Eyes On Celsius

Earlier this year, crypto lending platform BlockFi started facing the heat from state regulators in New Jersey, Texas, and Alabama. Other states have joined the fold since then, as well. Celsius this week is now facing similar cease and desist demands from all three of the same states that BlockFi first faced.

Let’s take a look at what we know thus far, and what it could potentially mean for DeFi moving forward.

Regulators Reach: What Celsius Is Facing

It’s becoming quickly apparent that Celsius is joining the fight in facing regulators in the same vein that BlockFi has. On Friday, Texas officials filed a cease and desist order against Celsius. The filing will require Celsius to show the state why it shouldn’t be ordered to stop offering it’s products to state residents. Celsius, like BlockFi, faces accusations that it is offering residents unregistered securities. The Texas hearing is scheduled for February 24.

Both Alabama and New Jersey seemingly issued similar actions on the same day. New Jersey ordered the platform to stop offering select products by November 1. In a similar action, Alabama demanded that the platform show why it shouldn’t be halted from offering products within 28 days.

A Celsius representative told Bloomberg that the firm is “disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law,” adding that the platform would not be making any immediate changes in services for clients.

Celsius’ native platform token, CEL, offers more aggressive yield rates – but is not currently offered in the U.S. | Source: CEL-USD on TradingView.com

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DeFi’s Uphill Battle

The news comes just a couple short weeks after Coinbase released a blog post regarding an impending lawsuit from the SEC, assuming that Coinbase moved forward with it’s anticipated Lend product. Coinbase has since applied for a National Futures Association license. It remains to be seen what happens with the Lend product and SEC.

Meanwhile, Celsius has quietly become a behemoth in DeFi. The platform reportedly holds over $24B in “community assets,” making it one of the biggest – if not THE biggest – crypto lender and interest-account provider. What it means for Celsius customers in the respective states taking action remains to be seen, and BlockFi could end up being a case study moving forward. However, what we’ve seen from BlockFi and regulators thus far hasn’t been much to establish a precedent. Thus far, throughout a handful of states, only new account registration has been restricted. Customers on BlockFi prior to the regulatory action have had no impact.

To date, consumers have largely been left in the dark on what sort of impacts could be seen here moving forward. The optimist in this situation might say that these actions could lead to regulation that establishes good practices and frameworks for crypto lending platforms. However, the pessimistic perspective would be led to believe that more states could join the ranks and that DeFi could face increased pressure from regulators given the impact on traditional banking institutions.

Either way, it seems hard to suggest that through these individual state regulators have consumer protection at the forefront. Where it leads from here remains to be seen.

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As SEC Lawsuit Looms, Coinbase CEO Describes The Agency’s Behavior As “Sketchy”

The regulatory battle with DeFi is heating up. The SEC now seemingly has it’s eyes set on arguably the largest cryptocurrency exchange in the United States.

The news comes after five U.S. states sent individual notices to DeFi platform BlockFi in recent weeks. This week, reports have surfaced that Coinbase is facing regulatory scrutiny over it’s upcoming, yield-generating Coinbase Lend product.

Coinbase CEO Brian Armstrong had quite a bit to say about it, describing the SEC behavior as “sketchy”.

Coinbase Expresses Frustration

Coinbase issued a strongly-worded blog post that broke the word over the agency’s threats, titled “The SEC has told us it wants to sue us over Lend. We have no idea why.”

Posted by Coinbase Chief Legal Officer Paul Grewal, the post explains that the government agency issued a Wells notice last week regarding the company’s upcoming Lend product – despite what Coinbase describes as “months of effort by Coinbase to engage productively.” A Wells notice is a regulatory letter that notifies preparation of enforcement action.

The Coinbase Lend product intends to allow consumers to earn 4% APY on stablecoin USDC as a starting point for select interest-earning assets. The blog states that rather than preemptively launching the platform, the company took a proactive approach in advising the SEC regarding it’s intent first. The blog post continues on to state that despite these efforts, along with compliance with reasonable SEC requests, the agency intends to sue should Coinbase launch the Lend platform.

The post closes stating that for the time being, the Lend platform will not launch until at least October, reiterating that “dialogue is at the heart of good regulation.” Unfortunately, it seems to be a one-way conversation thus far.

The SEC is seemingly incentivizing an “ask for forgiveness, rather than permission” policy.

As crypto’s total market cap continues to grow, regulatory question marks becoming increasingly apparent. | Source: CRYPTOCAP – TOTAL on TradingView.com

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It Doesn’t Stop There

Coinbase CEO Brian Armstrong took to Twitter to express some frustration as well. In a tweet thread spanning over twenty tweets long, Armstrong leads off with “some really sketchy behavior coming out of the SEC recently…”

Armstrong goes on to recap the blog post in brief, with the sticking point seeming to be that the SEC is describing the lending feature as a security, without providing any sort of elaboration or specification as to how or why that would be the case.

These circumstances could set a very interesting precedent moving forward on the leeway the SEC is given on how, what, and why the SEC determines what is and isn’t a security. To date, Coinbase’s efforts to be transparent and communicative with the agency don’t seem to be reaping rewards.

We’ll see if that continues to be the case. As Armstrong aptly states to close out his tweet thread, “hopefully the SEC steps up to create the clarity this industry deserves, without harming consumers and companies in the process.”

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