The US Securities and Exchange Commission (SEC) is tightening its regulatory noose around the crypto market. Gary Gensler the current SEC chief in a recent interview to Financial Times issued a stern warning against crypto lenders claiming any platform offering such services cannot avoid regulations.
Gensler said investors in the crypto market deserve the same kind of protection that many enjoy in the traditional market. He explained,
“This crypto space is now certainly of a size that without those investor protections of banking, insurance[and] securities laws [and] market oversight, I do think somebody is going to get hurt,” he said. “A lot of people are likely to get hurt.”
The controversy around crypto lending products began with Coinbase which revealed it had been threatened with a lawsuit over its unreleased stablecoin lending product by the SEC. The crypto exchange in an official blog post blasted SEC for not offering clarity around the security regulations and reasons as to why their product is a security. The leading crypto exchange later decided to drop its lending product plans in a hush-hush manner.
The Fate of Crypto Lenders Remain Uncertain
Coinbase has dropped its plans of crypto lending services after 6-months of failed talks with the SEC, the real focus is now on core cryptos lending platforms such as BlockFi, Celsius, crypto.com, and several others. Celsius is also facing the wrath of regulators in three states and looking at the aggressive stance of SEC it might extend to other similar service providers.
While SEC claims it is open to discussions with service providers, Coinbase’s experience suggests its quite opposite. Gensler in particular who was being hailed as the crypto hero before taking over from Jay Clayton is proving to be a bigger roadblock for crypto innovation.
Gary Gensler just said that companies offering lending products should come into the SEC and discuss how to operate within the perimeter, but @coinbase tried that in advance of launching LEND and were threatened with litigation.
What would you do?
— The Wolf Of All Streets (@scottmelker) September 21, 2021
SEC chief continues to reiterate his stance about the need for tighter regulations to ensure investor protection without offering much clarity on how the SEC plans to do it. Many former regulatory chief and lawmakers including Pat Toomey has called for more clarity from Gensler and SEC.
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