Various US states recently took action against the cryptocurrency lending platform Celsius Network, accusing the firm of providing residents with unregistered securities.
On Friday, September 17, Texas securities regulator – the Texas State Securities Board – filed legal action against Celsius Network, expecting the firm to explain why it should not be ordered to stop providing its products to state residents. The court hearing is scheduled to take place on February 14, 2021.
Also, on Friday, New Jersey securities regulator – the New Jersey Bureau of Securities – ordered Celsius to stop providing some of its products, which the state considered unregistered securities. Alabama also gave a similar order demanding that Celsius show why it should not be barred from providing its products within the next 28 days.
As of September, Celsius had more than $24 billion in “community assets.” The crypto firm stated that such assets under its management would make it the world’s largest interest-account provider and cryptocurrency lenders, if not the largest. The company provides customers with a yield of almost 9% for deposits of US dollar stablecoins like USD Coin and Tether, as much as 6.2% for Bitcoin and varying rates of interest on other cryptocurrencies.
Meanwhile, Celsius and other firms offering cryptocurrency interest accounts have stated that they can pay such high yields because they lend out the deposits at even higher rates to institutional investors, which need to borrow cryptocurrency to carry out their trades like to engage in arbitrage or short the market.
However, national and state regulators have stated that the firms are likely breaking the law and said that the products, which sometimes are marketed as an alternative to bank savings accounts, should be registered with their agencies. The registrations would give more details on disclosures to investors as well as agency oversight.
Cryptocurrency Savings Accounts
The development against Celsius Network came when Alabama, Texas, and New Jersey were also among US states that issued cryptocurrency leader BlockFi with similar actions in July.
During that time, the three US states mentioned that the cryptocurrency platform BlockFi may have violated securities law by providing its interest-bearing accounts within their jurisdictions.
The three states said BlockFi did not register its BlockFi Interest accounts with state regulators and stated that such products might be unregistered securities offerings.
BlockFi Interest Accounts allow customers to deposit their cryptos and earn interest, depending on how much and which kinds of assets are deposited.
On September 7, the US Securities and Exchange Commission warned that it would sue Coinbase if the exchange launched its new digital asset lending product. Coinbase plans to launch a yield product called Lend that allows customers to earn interest in certain digital assets on the platform. The SEC considers the Lend product as security.
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