In the latest sign of the escalating tension in the regulation of cryptocurrency products (and, according to many, regulation by enforcement), New York and seven other state regulators charged cryptocurrency lender Nexo Group for failing to register its crypto lending product as a security. According to court papers, regulators warned Nexo that the sale of its interest bearing crypto lending product constituted the sale of a security, and instructed it to register as a broker-dealer. However, Nexo failed to register and allegedly misrepresented to investors that they’re a licensed and registered platform. Given the recent implosion of other crypto-lending companies, coupled with BlockFi’s recent $100 million settlement with the SEC and state regulators relating to a similar product, Nexo Group’s chances of successfully defending its position seem bleak.
Why it matters. We’re in a time of increasing regulatory uncertainty, although potentially clearer standards will arise out of the White House’s Framework for Digital Assets. Accordingly, crypto firms and other FinTechs need to carefully consider the changing landscape when exploring new products and services. Industry-accepted norms and practices and can become unacceptable with little to no notice.