“We can dispense with the idea that crypto lending isn’t subject to regulation. On the contrary, the rules have been around for decades. The platforms aren’t following them. ”
What do car manufacturers have to do with crypto lending platforms? Consumers and investors deserve protection—that’s true of motor vehicles and investment vehicles alike, U.S. Securities and Exchange chair Gary Gensler argued in a Wall Street Journal editorial Friday night.
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 meant to protect investors.
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Recent market events, such as some crypto lending platforms freezing their 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 are provided by the law, he argued.
Investors benefit from knowing what stands 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 can’t avoid complying with time-tested investor protections by sticking a label on the product or on the promised benefits, whether it’s called a lending platform, a crypto exchange or a decentralized finance platform, he wrote. Across decades of cases, the Supreme Court has made clear that the economic realities of a product—not the 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 the crypto-lending platform BlockFi.
Noncompliance isn’t the inevitable result of the crypto business model or underlying crypto technology. Rather, it is as if these platforms are saying they have a choice—or even worse, saying “Catch us if you can”, Gensler concluded.
An expanded version of this story appears on WSJ.com.