Hacker News Reader

Comment by capableweb | Hacker News Reader

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 the Investment Company Act of 1940" (both quotes from the SEC statement).

BlockFi also doesn't mention the "false and misleading statement for more than two years on its website" part that the SEC highlights, and instead says "Both the SEC and state-level agreements contain no admission or denial of wrongdoing or liability."

Going to be interesting to see how the space develops moving forward. Hopefully companies that continue to mislead people will eventually disappear, or at least not be this popular among the masses.

View on HN

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 the space, in a way that is now much scarier to any would be new entrants.

At its most optimistic I think crypto is trying to avoid some of these regulatory rube goldberg value extraction machines. Maybe it will in some spots, but you can see too where it may also just reinvent them.

> 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 cryptocurrency<>centralized 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.

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.

I have a vested interest in this domain now that I'm starting up in this space so am closely following these and related products.

A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment.

In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan.

In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point.

I'm really glad SEC has been proactive. I hope regulators in other countries do so. Because 99% of the money flowing into these are totally guidable and clueless people; they need to be protected for their own sake.

[1] https://www.pillow.fund [1] https://www.flint.money

[2] https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...

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 to do things right.

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 our deliberate, slow and steady approach will help us tide over the current short term bubble and the imminent burst.

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

We are at idea-validation stage so it's very early days for us. The overarching theme is educating users by making them aware of what they are/have getting/gotten into. Somewhat similar to rating agency in the traditional finance world (e.g., Moody's) but not exactly like them.

One related thing is that there has been a large increase in attempts by scammers to mimic a legitimate product with a fake domain, etc. You could actually detect these pretty well by looking at the TVL and other factors. Was the contract deployed fewer than 30 days ago? Have the amount of funds deposited to it less than the top 50/100 contracts?

A related problem is not even depositing but simply granting token approval to a scam app, and similar techniques may be used to warn users before they give these approvals.

If you told me "I'm like a rating agency" I'd double my scrutiny of you, if I didn't simply walk away.

The agencies played a large role enabling the mortgage bubble that popped in 2008. They were essentially selling ratings to bond issuers without any real attention to the quality of the loans underlying the bonds.

They won’t. The desire for making a quick buck is too strong. The avalanche of marketing around crypto is going to lead many gullible people to “invest” in crypto and lose their money.

Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop.

> Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop.

It seems, based on this action that the SEC just went through with, that things like BlockFi are not "clearly MLM / fraud" as you say, as otherwise they would indeed try to get them shutdown, not just slap a tiny fine on them.

The SEC doesn't do MLMs. Herbalife and Lularoe operate in broad daylight. The US has always been very kind to such scams

> The SEC doesn't do MLMs.

It does if they are selling securities (either as their main business or securities for their business).

The FTC does regular MLMs.

> Herbalife and Lularoe operate in broad daylight.

Herbalife was restructured to settle a pyramid-scheme lawsuit by the FTC. [0] And subsequently also settled a lawsuit from the SEC. [1]

LulaRoe has managed not to be sued by the FTC, but that seems mostly to be because that process is complaint driven and the complaints have instead either gone to state regulators or directly into private lawsuits; LulaRoe has a pile of direct- and class-action lawsuits from distributors, settled a State of Washington lawsuit for $4.75 million, has been sued by it's main supplier, etc.

[0] https://www.consumer.ftc.gov/blog/2016/07/restructured-herba...

[1] https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbal...

Reply on news.ycombinator.com