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Earlier this year, crypto lending platform BlockFi started facing the heat from state regulators in New Jersey, Texas, and Alabama. Other states have joined the fold since then, as well. Celsius this week is now facing similar cease and desist demands from all three of the same states that BlockFi first faced.
Let’s take a look at what we know thus far, and what it could potentially mean for DeFi moving forward.
Regulators Reach: What Celsius Is Facing
It’s becoming quickly apparent that Celsius is joining the fight in facing regulators in the same vein that BlockFi has. On Friday, Texas officials filed a cease and desist order against Celsius. The filing will require Celsius to show the state why it shouldn’t be ordered to stop offering it’s products to state residents. Celsius, like BlockFi, faces accusations that it is offering residents unregistered securities. The Texas hearing is scheduled for February 24.
Both Alabama and New Jersey seemingly issued similar actions on the same day. New Jersey ordered the platform to stop offering select products by November 1. In a similar action, Alabama demanded that the platform show why it shouldn’t be halted from offering products within 28 days.
A Celsius representative told Bloomberg that the firm is “disappointed these actions have been filed and wholeheartedly disagree with the allegations being made that Celsius has not complied with the law,” adding that the platform would not be making any immediate changes in services for clients.
Celsius' native platform token, CEL, offers more aggressive yield rates - but is not currently offered in the U.S. | Source: CEL-USD on TradingView.com
DeFi’s Uphill Battle
The news comes just a couple short weeks after Coinbase released a blog post regarding an impending lawsuit from the SEC, assuming that Coinbase moved forward with it’s anticipated Lend product. Coinbase has since applied for a National Futures Association license. It remains to be seen what happens with the Lend product and SEC.
Meanwhile, Celsius has quietly become a behemoth in DeFi. The platform reportedly holds over $24B in “community assets,” making it one of the biggest – if not THE biggest – crypto lender and interest-account provider. What it means for Celsius customers in the respective states taking action remains to be seen, and BlockFi could end up being a case study moving forward. However, what we’ve seen from BlockFi and regulators thus far hasn’t been much to establish a precedent. Thus far, throughout a handful of states, only new account registration has been restricted. Customers on BlockFi prior to the regulatory action have had no impact.
To date, consumers have largely been left in the dark on what sort of impacts could be seen here moving forward. The optimist in this situation might say that these actions could lead to regulation that establishes good practices and frameworks for crypto lending platforms. However, the pessimistic perspective would be led to believe that more states could join the ranks and that DeFi could face increased pressure from regulators given the impact on traditional banking institutions.
Either way, it seems hard to suggest that through these individual state regulators have consumer protection at the forefront. Where it leads from here remains to be seen.