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The SEC Just Killed Crypto Lending - YouTube
Channel: Max Maher
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100 million one of the largest fines in
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crypto history and not only that but a
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restriction of business where block by
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can't sign up new customers in the us
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and this begs the question with block
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fight facing the proverbial firing squad
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will we lose the ability to earn that
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precious juicy interest on stablecoin's
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period i mean this is one of my favorite
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parts about crypto blockfy says that all
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should be well and good with their soon
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to be released yield product but is this
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totally accurate i needed to take the
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time and do the research for myself so
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here's what went down block fight agreed
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to pay 100 million dollars in fines for
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violating securities laws the thing is
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crypto lending is becoming more and more
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popular i mean every major exchange
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offers apr that beats any traditional
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savings account into submission for the
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longest time it's almost felt too good
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to be true why would i keep my money in
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the bank if i can earn eight to fifteen
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percent elsewhere according to the sec
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and this 90 year old document that might
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be the case too good to be true could
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the sec be right here or is this simply
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a case of laws being outdated for new
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technology on the one hand it's no
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secret that there's countless crypto
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scams that a little regulation could be
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pretty helpful on the other hand is this
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90 year old document the best pamphlet
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to follow
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we'll get to all this shortly because
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here's what the chair of the sec had to
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say today's settlement makes clear that
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crypto markets must comply with
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time-tested securities loss so what does
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block fi intend to do about all of this
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well they have an idea it's called block
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fi yield which is a new crypto interest
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bearing security aiming to be available
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and legal
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importantly legal for u.s clients we'll
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break that down further in a second but
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first i have a more pressing question
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what happens to current investors i mean
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i have a block fight interest account
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with a good chunk of money in it will i
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stop earning interest do i need to worry
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what about my block fight credit card or
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my wallet thankfully no if you're in the
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u.s you can continue receiving interest
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on existing holdings but unfortunately
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you can't add any new assets into your
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account this only affects the block
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fight interest account program so the
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blockfy wallet and credit cards will
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still be good to go it's also important
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to note that while you can't make any
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new deposits you can still withdraw your
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funds at any time if you choose to
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blockfy claims that this is an overall
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win and seems optimistic even though
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this new interest account product will
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make it harder for them to do regular
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business as they'll now be subject to
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quarterly reporting however in the fine
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print block fight themselves has stated
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that they've yet to file with the sec
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and there can't be any assurance just
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yet that their filing will be successful
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so where does this leave us they're both
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confident but unsure sounds a lot like
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me when i was single but it seems
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like this is what likely happened they
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have a compliance officer or a team of
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them that are nearly certain that they
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can get their yield product approved but
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their lawyers have to say we can't
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guarantee it for now at least for the
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time being either way until then if you
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want to earn interest on cryptos you
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need to find another alternative to
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survive if you don't already have an
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account there if you're looking for a
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good option i've been using kucoin now
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for about 10 months and have earned 24
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000 in lending profits just on stable
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coins in that time i'll have a discount
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link in the description if you're
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interested or if you're familiar with d5
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you can go to the anchor protocol and
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lend out some money there it's just more
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complicated to make that happen the
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reality is when something revolutionary
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is invented there's always some kind of
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controversy and when it comes to new
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technology in money regulations can be
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extremely slow to catch on all this
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blockfy news made me think of the story
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of credit cards the first general
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purpose credit card was called the
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diners club card this thing was
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revolutionary but it had some major
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limitations mainly that the card allowed
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members to charge the cost of restaurant
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bills and that's it that's all plus you
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better hope that it didn't rain with
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this thing in your pocket because it was
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made out of cardboard and not only that
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each vendor had their own card so they
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are shoving your wallet full of
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cardboard crossing your fingers that it
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doesn't rain and then there was an
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update not without its own issues as
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well this was a bank of america's bank
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america creative name i know but this
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thing was revolutionary a single car
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that could be licensed to any local bank
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which meant no more carrying around
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those construction paper gift cards but
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profit for bank of america didn't come
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easy by late 1959 22 percent of accounts
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were fraudulent plus bank of america
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lost a total of eight million dollars
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just during the launch was about 70
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million in today's money not enough to
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file bankruptcy but close to what
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blockfi is having to pay in fees for
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their recent fines and even that wasn't
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the last issue for bank america because
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someone in their marketing think tank
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convinced them to mail out 65 000
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pre-approved credit cards to residents
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in fresno california not applications
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actual working credit cards this is
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called a credit card drop and it was
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eventually made illegal in the 1970s the
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reason this made me think of block fi is
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because they basically said you know
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what screw it we're going to allow users
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to lend out crypto and eventually
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regulations will come and we'll deal
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with it then and the sec said well
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here's those regulations that you
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ordered if you're going to let users
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earn interest you need to provide exact
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information on how you're generating
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enough money to pay them interest and
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you better be totally transparent about
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it this is important because blockfy
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earns part of its money by lending to
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institutions and then you the user gets
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some of the profit in the form of
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interest a totally reasonable request by
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the sec but this hasn't been done before
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so it's complicated and this is why
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blockfy has to file as a security
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product and to be approved to continue
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on with new users the application that
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blockfy will be submitting is called an
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s1 filing and upon approval this would
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theoretically allow that new product
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called block fi yield now if blockify
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succeeds in getting their s1
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registration they'll then have to leap
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through another regulatory hoop the
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investment company act see the
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commissioner of the sec highlights that
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the deadline of 60 to 90 days is highly
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ambitious and there's another problem
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here they're not sure that the
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settlement will do anything good for the
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ordinary investor they said rather than
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forcing transparency around retail
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crypto lending products today's
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settlement may stop them from being
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offered to retail customers in the
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united states this would be bad because
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it could result in a product that's
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either only available to large
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institutions or accredited investors bad
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because the whole point of crypto
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lending is to serve the little guy offer
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a chance to actually make money on our
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money that isn't a tenth of a percent
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that banks give us this is the fight
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financial opportunity for everyone and
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this leads to the fundamental question
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of whether crypto lending in general
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should be considered a security and thus
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regulated more closely to help determine
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we need to look
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investment of money second in
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expectation of profit a common
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enterprise and derived from the efforts
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of a promoter or third party so let's
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imagine that we're a lawyer arguing the
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case that crypto lending isn't a
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security we would need to knock down at
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least one of these pillars thinking of
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exceptions to the rule so number one
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investment of money an exception here
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would be gifts or credits think airline
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miles or crypto airdrops this doesn't
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work for lending because we're obviously
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investing money okay moving our lowering
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to the next pillar expectation of
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profits the exception here would be
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buying any regular product or service
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kind of like my patreon which is linked
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in the description for only ten dollars
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a month and signing up there will get
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you access to tons of additional content
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just make sure you grab your spot down
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below but this also doesn't work for
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crypto lending because of course we're
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expecting profit that's why we make a
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deposit into a platform like block fi in
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the first place all right
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next pillar common enterprise basically
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you need to be able to argue that you
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the investor are not rising and falling
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with the company that you're effectively
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investing in a company's stock is a
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perfect example of profiting with a
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common enterprise if the company does
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well you as a shareholder do well that's
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why stocks are securities exceptions
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here would be things like collectibles
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nfts baseball cards beanie babies you
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get the picture you can make money off
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of a beanie baby without the company
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necessarily profiting this is where
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there's a little bit of wiggle room to
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argue as a lawyer for crypto lending but
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it's not totally clear again because
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these rules are decades old and then
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finally the last pillar the efforts of a
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third party to earn you profit easy
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exceptions to this would be commodities
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like beans wheat or even bitcoin and
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ethereum this is another one with a bit
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of gray area if blockfy is lending out
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money to big institutions in order to
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make the largest amount of money
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possible and then to pay us with that
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money it's tough to argue that this
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isn't a security however if we're
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lending crypto on a free market
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peer-to-peer kind of like how kucoin
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works then there's possibly even more
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wiggle room here to argue that this
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isn't a security this may also mean that
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defy lending with a smart contract isn't
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a security so as we can see this is
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complicated the best outcome would be
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for highly educated people to develop
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better guidelines specifically for
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crypto instead of using outdated rules
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so there's a lot of unknowns at this
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point but what we do know is that crypto
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lending is extremely important in my
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opinion this is one of the greatest
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things to ever happen to the average
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investor as far as block fight goes sure
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they could have asked for more
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permission ahead of time but take a look
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at coinbase the sec just outright
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stopped them so i have to kind of
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commend blockfy in a way for taking
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charge and just paying the fines of
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course this doesn't take away from the
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fact that they should have been more
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clear exactly in the risks that
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investors take by landing on their
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platform but that seems to be in the
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works the biggest saving grace here is
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if lending on platforms like block fight
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get outlawed altogether then we still
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have d5 lending to use and benefit from
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so this is a story to absolutely keep
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your eyes on if you haven't subscribed
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to the channel yet now is a great time
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to do it it's free and you can always
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change your mind later i'd like to thank
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you so much for watching and i hope you
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have a powerful day
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