BlockFi interest account under scrutiny by SEC, questioning high annual interest rates involving securities

The U.S. Securities and Exchange Commission (SEC), after previously blocking the launch of Coinbase's lending product "Coinbase Lend," has recently set its sights on a new target. The interest accounts of cryptocurrency financial services company BlockFi, which offer users interest rates several times higher than traditional financial institutions, are being scrutinized to determine if they should be classified as securities products that require registration under regulatory authorities.

BlockFi Interest Account

According to Bloomberg, the SEC is currently investigating BlockFi's Interest Account, known as the BlockFi Interest Account (BIA). Users can deposit purchased cryptocurrencies into this account and receive monthly interest. The monthly interest rates vary depending on the cryptocurrency, with the highest being 9.5% APY for the stablecoin USDT.

Such a high APY is incomparable to the average interest rate of 0.06% on U.S. bank savings accounts. BlockFi is able to offer such high APY primarily by using the deposits from users to provide lending services to institutional borrowers in need of large amounts of capital and earning interest on the spread.

The focus of the SEC's current scrutiny is whether BlockFi's Interest Account falls within the category of securities and therefore requires registration with regulatory authorities.

Continual Controversy for BlockFi

Prior to the SEC investigation, BlockFi's Interest Account had already drawn scrutiny from several state regulatory bodies, with authorities in Alabama, New Jersey, and Texas alleging that the platform engaged in unregistered securities trading and asserting that the Interest Account qualifies as a security under existing laws, demanding a halt to such services. However, the cease order has been postponed and will not take effect until at least December.

Coinbase Loan Products

In late June of this year, the prominent U.S. exchange also introduced a similar lending product called "Coinbase Lend." Lend is a financial product based on the stablecoin USDC, offering an annualized yield of 4% and promoting itself as "50 times higher than traditional savings account rates."

However, after SEC review, it was claimed that Lend involved securities and a Wells Notice was issued, indicating the intention to pursue legal action. Ultimately, this product, thwarted by the SEC, failed to launch.

The underlying principle of BlockFi's product is similar to Coinbase Lend, both offering cryptocurrency and promising high returns in the future. If the SEC makes a similar determination as in the past, BlockFi's Interest Account feature may indeed face the prospect of being discontinued.