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Comment by _vdpp | Hacker News Reader

What laws did they break? Legitimately curious.

IANAL. When an entity takes customer deposits it gets hyper regulated, a notch or two below commercial bank. These apps circumvent those regulations by accepting deposits in crypto.

Regulators are are also in bit of a spot because it's an entirely new beast. For most of the current use case crypto acts like unregistered security but in in some minor way it's also a currency. So regulators are biding their time because coming down with a heavy hand will attract a bad rep as big hedge funds are also getting into crypto.

Also, IMO current legal codes aren't good enough to tackle crypto at the moment, see this[1] for example. It's an active area of legal research so will take time to crystallise.

So these apps are slipping through this regulatory crack. Do they deserve to go to jail? I'm not so sure. But they do know what they are doing.

[1] https://www.imf.org/en/Publications/WP/Issues/2020/11/20/Leg...

It almost sounds like a carnival or arcade where you can buy tokens and gamble them to try and win tickets. I wonder if that’s a potential defense.

Nope. Just watch... this has all happened before and it will all happen again.

The thing with crypto is it's getting rapidly enmeshed with main-street finance. For instance one can take loans against crypto, retirement accounts are offering crypto exposure and so on.

It's relatively easy to deal with money-like substances that are precisely confined (closed-loop as they are called sometimes) such as carnival tokens, or Starbuck reward points. Problem starts when they start leaking into day-to-day finances.

In the U.S. at least, anyone dealing in things financial has to be very careful not to violate any number of laws involving money handling, banking, insurance, securities etc. It's not enough to say 'we don't do that' or 'we're not a registered X and therefore not required to do Y'. If a relevant government agency decides you are an unregistered X, or otherwise violating the law, be prepared for an expensive multi-year legal fight and most likely to lose unless you are really doing something completely new that actually isn't like the old thing[1] they are tasked with regulating/enforcing.

I'm actually quite surprised that some of these scams (stablecoins being one example[2]) have been allowed to go on as long as they have.

[1] i.e. buying you at least a temporary reprieve as all you're winning is the argument that that particular law doesn't apply to you, not that they won't pass a new law and come after you using it.

[2] It sure looks to me like they're pretending to be defacto banks issuing their own defacto dollars and not so subtly assuring 'investors' a rate of return. The combination of these factors have historically been all but guaranteed to get damn near every agency of the govt on your ass.

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