“We can dispense with the idea that crypto lending is not subject to regulation. On the contrary, the rules have existed for decades. The platforms do not follow them. “
What do car manufacturers have to do with crypto lending platforms? Consumers and investors deserve protection – that applies to both motor vehicles and investment vehicles, US Securities and Exchange Chairman Gary Gensler argued in an editorial in the Wall Street Journal on Friday evening.
Just as the National Traffic and Motor Vehicle Safety Act signed by President Lyndon Johnson in 1966 protects motorists, similarly federal securities laws signed by President Franklin Roosevelt during the Great Depression of the 1930s were intended to protect investors.
See also: Your funds held on crypto platforms are not protected by government insurance. FDIC warns FTX’s US arm to stop ‘false and misleading’ claims.
Recent market events, such as some crypto-lending platforms freezing investors’ accounts or going bankrupt, show why it’s critical that crypto firms comply with securities laws, he said.
It doesn’t matter what kind of asset an investor puts into a crypto app — cash, gold, bitcoin, chinchillas or anything else, it’s what the crypto platform does that determines what protections the law provides, he argued.
Investors benefit from knowing what is behind the crypto firm’s claims that it will provide a certain return. Disclosure helps the investor understand what is being done with his or her assets.
The crypto platform cannot avoid complying with time-tested investor protection by attaching a label to the product or to the promised benefits, whether it is called a lending platform, a crypto exchange or a decentralized financial platform, he wrote. Through decades of cases, the Supreme Court has made it clear that the economic realities of a product—not its labels—determine whether it is a security under the securities laws.
That’s what the Securities and Exchange Commission found in a recent settlement with crypto-lending platform BlockFi.
Non-compliance is not the inevitable result of the crypto business model or underlying crypto technology. Rather, it’s as if these platforms are saying they have a choice—or worse, saying, “Catch us if you can,” Gensler concluded.
An extended version of this story appears at WSJ.com.
