As crypto moves into the world of banking, regulators are being forced into action

As crypto companies forge into bank-like services, regulators are being forced to take action.


September 9, 2021

BlockFi is a platform that allows customers to deposit and withdraw assets, pays interest on holdings, and lends to both individuals and institutions.

If that sounds like a bank to you, you’d be spot on. With a key difference from traditional financial institutions…

… BlockFi deals exclusively with cryptocurrencies.

The firm is the poster child of crypto’s banking struggle

Since 2017, BlockFi has amassed $10B+ in assets, 450k+ retail clients, and 850 employees, according to a New York Times report.

The company has also been the subject of regulatory action in 5 states claiming it’s violating securities laws.

Notably, BlockFi falls on the tame side of the crypto banking spectrum:

  • Platforms like BlockFi and Kraken are modeled after traditional banks, but without FDIC protections
  • Then there’s the Wild West of decentralized finance (AKA DeFi), where products like Compound and Aave remove humans entirely, using algorithms to enact transactions

The rapid growth of DeFi has baffled regulators…

… which has put new rules in flux and left crypto founders uncertain about the legality of their products.

In a recent Twitter thread, Coinbase CEO Brian Armstrong called out the SEC for sketchy behavior, citing its denial of a product that lets customers earn interest on their holdings — a core feature of BlockFi.

This uneven playing field is a product of how fast crypto is moving…

… and a big reason regulators are snapping into action. So far, multiple government agencies have gotten involved:

  • The Federal Reserve and others have initiated a “crypto sprint” to collaborate on cryptocurrency regulations
  • The SEC created a stand-alone office to focus specifically on crypto and digital assets

As money continues pouring into these products, the impact of regulator efforts could decide the fate of crypto’s unicorns, and your crypto wallet.

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