How Yield Farming Products Offered by Crypto Companies Fit in with the Financial Regulatory Scheme in the U.S.
ABSTRACT
In a little over a decade, cryptocurrency has gone from a brand-new innovation to a major force in the financial world. In the world of crypto, innovation happens quickly, and regulators are often left playing catch up. One of the newer innovations in the crypto scene is called yield farming. Yield products work by consumers giving their cryptocurrency to companies that then lends the assets out. The crypto companies pay their customers a rate of return while customers are free to demand their cryptocurrency back at any point in time.
These products have become standard offerings from large crypto companies. However, they have also become the target of action by the Securities and Exchange Commission. Major crypto companies Coinbase and BlockFi have had to deal with SEC enforcement actions in the last year, resulting in Coinbase shutting down its yield product and BlockFi paying $100 million to settle. With stakes so high, companies must comply with the appropriate regulations. However, with new products such as these, it can be hard to determine the proper guidelines for a company to follow. Are yield products actually securities as the SEC claims? Are yield products deposit accounts, and resulting in companies offering them illegally operating as a bank? If both options are valid, what happens when banking and securities regulations overlap?