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Blockfi agrees to pay $100M in penalties and pursue registration

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Re: Blockfi agrees to pay $100M in penalties and pursue registration

#141

Post by Animats »

sbierwagen wrote: post #132
thebean11 wrote: post #87

Earlier quoted context omitted.

Is BlockFi a scam though? Fraud is not what they are getting fined for, and it sounds like they can continue to operate if they meet these reporting requirements, and that the company intends to do that.

Check out the interest rates on their crypto accounts: https://blockfi.com/rates/ A guaranteed 9.25% APY on crypto deposits when US dollar savings accounts at FDIC banks do 0.50% is odd. Where is the extra money coming from?

And that is why S-1 filings exist - to provide the answer to such questions. Somewhere, for this to work, there must be people paying more than 9.25% to borrow money. Who are they? What collateral are they putting up? Whatever the borrowers are doing must be high risk, or they wouldn't be paying interest that high.

In effect, this is a junk bond they're selling - high interest, with a high chance of losing the principal. Those are semi-legitimate financial products (but see Michael Milliken). However, if you invest in junk bonds, you have to evaluate them, and you don't own just one. You own a broad portfolio of them, collateralized by different things, expecting some of them to fail and some to succeed. This is why there are junk bond funds. Some of which fail, because too many of the risks were correlated.

If someone in the DeFi sector is selling this, the funds are probably being used to finance some other crypto-related scheme. Not building a factory or an apartment building, which you could probably finance at 3-4% right now. So you're probably buying into a speculation that some crypto product goes up. You're buying with a capped upside, an uncapped downside, and no visibility into the risks.

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#142

Post by pevey »

pavlov wrote: post #4

The SEC has a whistleblower program that can award up to 30% of the fine to a whistleblower. Here's an example of someone receiving $32 million: https://www.sec.gov/news/press-release/2021-211 If crypto prices go down, it might become more lucrative for crypto employees to start talking to SEC rather than trying to sell their tokens. If you work at one of these places, why not start collecting documentation now.

There is also the Qui Tam route for whistleblowers in NY (or relating to allegations of wrongdoing that occur in NY or companies based in NY).

https://www.nycbar.org/get-legal-help/article/employment-and...

The whistleblower can get 15-30% of the penalty/settlement amount.

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#143

Post by pranavjoneja »

sirspacey wrote: post #101
f0e4c2f7 wrote: post #48

Earlier quoted context omitted.

Crypto to me reads increasingly like classical finance as time goes by. The parallel here is that banks lobby against new regulation, then once the regulation exists as a moat, they lobby to keep the regulation. I'm sure the 100M fine didn't feel great but unless it bankrupts the company I doubt that BlockFi would want to go backwards now. For the low price of 100M they now have a map of how to legally do business in…

This: “They now have a map” Regulators won’t generally tell you how to comply with a rule, often because they don’t know. So you force them to make a ruling and then have a proprietary roadmap. What was learned in those meetings by both parties is a huge moat. In the end, the SEC just got a hefty pay day for doing their job.

How is this a moat for BlockFi? Why can't a competitor do exactly the same thing as BlockFi without paying the $100M fine? Asking this question earnestly because I actually want to know more.

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#144

Post by floodyberry- »

BLKNSLVR wrote: post #135
jgalt212 wrote: post #118

Earlier quoted context omitted.

In general I agree, but there's just so much damn smoke.

How much smoke billows off Wall Street though? Didn't that particular garbage fire get re-lit surprisingly soon after the GFC? I'm somewhat pro-crypto for it's anti-establishment roots (which are barely visible these days) and so I find it interesting that the standard it's held to is much higher than that for existing 'finance' - for which the bar is incredibly low, seemingly for the only reason that society has dev…

"finance is corrupt" doesn't work in favor of crypto because insofar as crypto addresses the issue, it only allows finance to be even _more_ corrupt

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#145

Post by trulyme »

cdiddy2 wrote: post #100
5350-uiop-1130 wrote: post #84

I've had trouble finding clear jargon-free sources to explain how these lending platforms and various defi lending platforms generate yield. As far as I can tell it mostly works by token inflation. Celsius, Nexo tokens, Compound and Aave tokens for example. But these tokens are given as a reward to yield farmers so there is a huge sell pressure and yet I don't understand who is on the buy side. Why would you buy thes…

Compound and Aave both existed before they had tokens and there was still yield on the platforms. The yield is from borrowers paying interest to the lenders.

Who is borrowing at such rates though? Genuinly curious.

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#146

Post by cwp »

Animats wrote: post #141
sbierwagen wrote: post #132

Earlier quoted context omitted.

Check out the interest rates on their crypto accounts: https://blockfi.com/rates/ A guaranteed 9.25% APY on crypto deposits when US dollar savings accounts at FDIC banks do 0.50% is odd. Where is the extra money coming from?

And that is why S-1 filings exist - to provide the answer to such questions. Somewhere, for this to work, there must be people paying more than 9.25% to borrow money. Who are they? What collateral are they putting up? Whatever the borrowers are doing must be high risk, or they wouldn't be paying interest that high. In effect, this is a junk bond they're selling - high interest, with a high chance of losing the princi…

Well, the downside is capped at "you lose all the money you invested". I think. Did I miss something?

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#147

Post by shawabawa3 »

vineyardmike wrote: post #108
shawabawa3 wrote: post #92

Earlier quoted context omitted.

They likely re-lend on crypto platforms where thanks to incentives and high borrow demand you can relatively easily get 15+% yields For example anchor protocol offers 20% APY on UST deposited in it, and has done consistently for 6+months. As long as the peg holds and the protocol is solvent it's "free" money

FYI. Anchor is almost out of money to pay that yield. https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...

They topped that up with another $450M

https://agora.terra.money/t/capitalising-anchors-reserve-wit...

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#149

Post by notahacker »

BLKNSLVR wrote: post #135
jgalt212 wrote: post #118

Earlier quoted context omitted.

In general I agree, but there's just so much damn smoke.

How much smoke billows off Wall Street though? Didn't that particular garbage fire get re-lit surprisingly soon after the GFC? I'm somewhat pro-crypto for it's anti-establishment roots (which are barely visible these days) and so I find it interesting that the standard it's held to is much higher than that for existing 'finance' - for which the bar is incredibly low, seemingly for the only reason that society has dev…

> I find it interesting that the standard it's held to is much higher than that for existing 'finance'

It isn't though. It's has all the worst aspects of Wall Street, more wolves and a few unique problems, without the redeeming feature of it facilitating massive amounts of real world activity, and you'll still find more people on here defending even crypto's most blatant scams than you'll find arguing that securitising subprime mortgages is the future of homebuying but just had a few teething problems.

Re: Blockfi agrees to pay $100M in penalties and pursue registration

#150

Post by almost »

ryanSrich wrote: post #109
Animats wrote: post #74

Basically, the Investment Act of 1934 says: 1. You have to file a prospectus (an S-1) before collecting money. 2. You have to disclose a lot of stuff, like who's really behind this, where the money goes, what the risks are, what's happened so far, and what the business plan is. 3. Lying in an S-1 is a crime. Crypto schemes tend to violate 1), because 2) would show that their scheme is a scam, and if they tried to cov…

Conflating anything related to crypto as a scam is just lazy and anti-intellectual. This is one of HN's weakest traits IMO. I find great value in following topics and threads on HN, but it's unrelenting hate for crypto and crypto adjacent topics is unfounded.

Boy are we going to look stupid when a non-scam crypto use comes out! Total egg on our collective faces! One of these days! I mean obviously not today, but soon, right?
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