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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

#91

Post by Animats »

thebean11 wrote: post #87
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…

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.

They misrepresented how their assets were collateralized, creating a false impression of safety. That's fraud.

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

#92

Post by shawabawa3 »

PragmaticPulp wrote: post #69

Where is the $100 million going to come from? Do they have that much money to spare? Or are their customers about to take a haircut? On that topic, where does BlockFi's profit come from? They're offering 9% (previously 12%) interest on deposits. Are they really re-loaning that money to other people at the 20-30% interest rate required to produce those returns (high interest rates come with high default rates, so you…

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

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

#94

Post by cuteboy19 »

nikanj wrote: post #85
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…

Luckily they can run the whole scheme from Elbonia, and people are more than happy to send over cryptos from the US.

That's almost exactly how Tether (USDT) works. Except instead of Elbonia we have the Caymans

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

#95

Post by heyitsguay »

shawabawa3 wrote: post #92
PragmaticPulp wrote: post #69

Where is the $100 million going to come from? Do they have that much money to spare? Or are their customers about to take a haircut? On that topic, where does BlockFi's profit come from? They're offering 9% (previously 12%) interest on deposits. Are they really re-loaning that money to other people at the 20-30% interest rate required to produce those returns (high interest rates come with high default rates, so you…

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

Doesn't that just push the same question back a level? Where are these other platforms getting their profits from to sustain such high yields? If there's high demand for high-interest crypto loans, that means there should be platforms one can point to to trace the source of profit - the high-interest loans that fund the high-yield deposit platforms that fund this medium-yield deposit platform?

The whole thing sounds incredibly scammy.

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

#96

Post by capableweb »

f0e4c2f7 wrote: post #48
capableweb wrote: post #3

Interesting to read BlockFi's own statement about the event: https://blockfi.com/regulatory-developments/ No mention of the fine at all, and instead framed as "first SEC registered crypto interest-bearing security" (from BlockFi's page) rather than "[BlockFi] failing to register the offers and sales of its retail crypto lending product" and "the SEC also charged BlockFi with violating the registration provisions of t…

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…

> 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.

If you focus on the centralized institituions like cryptocurrencycentralized currencies exchanges, or centralized lending platforms, then yeah, they sure get closer and closer to classical finance (except being based around decentralized platforms).

But if you look at actual cryptocurrencies, without focusing on the exchanges or any other centralized parties, they actually get further and further away from classical finance. But it requires you to read GitHub/IRC/Matrix/Forum discussions between developers, rather than following reported news.

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

#97

Post by babyshake »

vishnugupta wrote: post #79
ilamont wrote: post #70

Earlier quoted context omitted.

I have a vested interest in this domain now that I'm starting up in this space ... 99% of the money flowing into these are totally guidable and clueless people Is your startup going after the consumers? If most prospective customers are clueless, and many of the remaining customers are sharks or early investors looking for suckers, that doesn't bode well for new companies in this space, even the ones that are trying…

You are right in general. As you could guess from the tone of my comment, I want the ecosystem to be cleaned up and my startup is going to play a role in that. It is essential for crypto/DeFi to go mainstream. There is a big shakeup coming which will weed out all these get-rich-quick products. Me and my co-founders are committing ourselves into this for the long haul (think ~10 years) so are taking it slow. We hope o…

Are you able to speak to how your startup plays a role in cleaning up the ecosystem? It seems like there are a bunch of different types of things that need cleanup, everything from the likes of BlockFi and lending products to outright scams that are trying to steal your wallet credentials or steal your funds. I'd welcome any type of cleanup

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

#98

Post by SilasX »

Cederfjard wrote: post #60
SilasX wrote: post #30

Earlier quoted context omitted.

Not sure the relevance, or how this story would remind you of that program, since BlockFi doesn’t issue a token, nor was the product in question secret. Disclosure: used BlockFi’s lending program and had pulled out most of my holdings for unrelated reasons by last week.

I think it was pretty easy to follow the reasoning. Cryptocurrency companies seem too often play fast and loose with laws and regulations, and the SEC can and will fine them. In addition, whistleblowers can get handsomely rewarded. Ergo, it might soon start to look more and more attractive for a lot of employees to tell on their employers. Even if this particular case didn't go down like that, I still think it's an i…

I got that reasoning just fine, and had no trouble following it. I was objecting to the flimsy pretense of bringing it up on a case that obviously doesn’t need whistleblowers since it was all done out in the open and advertised, and everyone agrees on all facts-on-the-ground but only ever differed on legal interpretation.

> Even if this particular case didn't go down like that, I still think it's an interesting point that's relevant to the discussion.

There are lots of things I’m sure you and I might find interesting. But HN doesn’t benefit from the practice of “ooh, let me use this topic as a pretense to post something I wanted to share regardless, and without reading the article”.

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

#99

Post by nazgulnarsil »

heyitsguay wrote: post #95
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

Doesn't that just push the same question back a level? Where are these other platforms getting their profits from to sustain such high yields? If there's high demand for high-interest crypto loans, that means there should be platforms one can point to to trace the source of profit - the high-interest loans that fund the high-yield deposit platforms that fund this medium-yield deposit platform? The whole thing sounds…

not if more tether can be printed from thin air to pay the interest.

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

#100

Post by cdiddy2 »

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.
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