BlockFi Ordered to Stop Servicing New Jersey Clients From July 22

Popular cryptocurrency lending platform BlockFi has received a Cease and Desist Order from the New Jersey Bureau of Securities, which will stop the firm from offering interest-bearing accounts in the state from July 22, 2021.

The order reportedly alleged that the crypto lending firm of offering unregistered securities in the state of New Jersey through the BlockFI Interest Accounts (BIA). The act, according to the Bureau of Securities, violates the state’s relevant security laws, and as such would require BlockFi to stop servicing residents of the state.

BlockFi Interest Rates Surpass Traditional Financial Firms

For the basic, the BIA offers interest rates between 0.25% and 8.5% based on the cryptocurrency the client opts for.

On the contrary, the average interest rate for Federal Deposit Insurance Corporation (FDIC) savings accounts is 0.06%, with a 10-year treasury note yielding 1.19%.

The Bureau of Securities faults decentralized financial platforms for not adopting FDIC or SPIC insurance, which is mostly used by traditional financial firms to protect their clients.

Contrary to the assumption that BlockFi is a decentralized finance platform like Compound because of its savings and lending products, the firm is a centralized entity.

Commenting on the development, Acting Attorney General Andrew J. Bruck said firms that sell securities within the state of New Jersey are mandated to comply with relevant laws in order to continue their operations, adding:

No one gets a free pass simply because they’re operating in the fast-evolving cryptocurrency market. Our Bureau of Securities will be monitoring this issue closely as we work to protect investors.

BIA Not a Security

Zac Prince, the BlockFi CEO, took to his Twitter page to affirm that the company did receive a Cease and Desist order for its BIA from the New Jersey Bureau of Security.

The CEO noted that while the BIA is not a security as classed by the Bureau of Securities, the company is already in talks with the relevant regulators to “help them understand the product.”

He assured the company remains fully operational for its clients in New Jersey as it continues to engage with relevant authorities to protect the interests of its customers.

New Precedence May Emerge For Crypto Lending Products

Although cryptocurrencies like Bitcoin and Ethereum are considered commodities by the Securities and Exchange Commission (SEC), and the Commodity Futures and Trading Commission (CFTC), BlockFi still supports other assets like ChainLink (LINK) that could be used against them.

While it is not clear where other cryptocurrencies are categorized in the book by regulators, if the Cease and Desist order goes through, it could give other states a hint on how to deal with crypto savings and lending products.