Crypto’s rapid movement has sounded the alarm in Washington

Headquartered in Jersey City, JPMorgan Chase, a fast-growing financial startup on the Hudson River across Wood Street.

Provides credit cards, loans and interest-bearing accounts. But instead of managing the dollar primarily, BlockFi works efficiently in the rapidly expanding digital currencies, creating an alternative banking system across technology boundaries.

A.D. “We are at the beginning of this story,” he said. Loans within minutes without credit checks.

But for state and federal regulators and some members of Congress, cryptocurrencies go bankrupt It is a reason for warning. Technology is rapidly and unexpectedly disrupting financial services in the world, leaving regulators far behind, leaving consumers and the financial market vulnerable.

In recent months, senior officials from the Federal Reserve and other bank regulators have launched what they call a “crypto sprint” in a short period of time to monitor rapid changes and learn how to prevent potential risks. History has been hailed as a technological breakthrough.

In interviews and public statements, federal and state officials warn that the crypto financial services industry is in a state of flux. Vulnerable to hackers and fraud and dependent on malicious inventions. Last month’s Crypto platform PolyNetwork In short, it is gone Most of the $ 600 million was returned to hackers after the site’s founders begged the thieves to stop.

Gary Jensler, chairman of the Securities and Exchange Commission, wrote in a letter to Massachusetts Democratic Senator Elizabeth Warren: cryptocurrency products. We also need additional resources to protect investors in this evolving and volatile field.

The SEC has set up an independent office to coordinate investigations into cryptocurrency and other digital assets, and has hired related professionals to help it track rapid changes. Recognizing that it may take at least a year to write regulations or pass legislation in Congress, regulators may issue temporary guidelines to regulate the industry.

BlockFi has previously been targeted by regulators accused of violating local security laws in five states.

Users of “Supervisors” ‘s worries will be able to access more experimental offerings with outfits such as pancake swaps, and users will be able to get up to 91% of their annual return on crypto deposits.

Treasury Secretary Janet El Elen and Federal Reserve Chairman Jerome H. Paul also expressed concern, even though the federation and other central banks have been unable to issue their own digital currencies.

Mr Paul pointed out that the so-called stable coins, the value of digital currencies, are typically denominated in dollars and are frequently used in digital transfers and other transactions such as loans.

“In fact, we have a tradition in this country where public money is held,” Mr Paul told a congressional hearing in July. For Stable Coins ”

Cryptocurrency banking border shows multiple companies. At one point, it was certified by a special charter in Wyming and hoped to take consumer cryptocurrency deposits by the end of this year on models similar to traditional consumer-focused banks such as BlockFi or Kraken Bank — but without the traditional Federal Deposit Insurance Corporation.

Decentralized finances, or defenses, are more suitable for Cryptocurrency than Wall Street. Players include Compound, a San Francisco-based company that operates out of control. DeFi eliminates intermediaries, such as brokers, bank clerks, and merchants, and uses algorithms to conduct financial transactions, such as loans and mortgages.

“Crypto is the new shadow bank,” Ms. Warren said in an interview. It provides many similar services, but without the consumer protection or financial stability that supports the traditional system.

He added: “It’s like turning straw into gold.”

Consumers and regulators are concerned that consumers are not always fully aware of the risks of new banking-like crypto services and decentralized financial platforms. Crypto deposits are not guaranteed by the federal government and may not be secured by moving markets.

People who borrow from their cryptocurrencies may face liquidity, sometimes in completely uncontrolled markets.

The unusual growth of BlockFi – and the latest move by government regulators – shows a way for cryptocurrency financial services companies to get confused about what they are doing.

BlockFi’s business is no different from a regular bank. He takes deposits of cryptocurrencies and pays interest on them. He lends dollars to people who take out loans. And it lends crypto to the institutions that need it.

For consumers, BlockFi’s main hobby is for customers to be able to borrow up to half a dollar worth of cryptoFi collateral without having to sell their digital assets without having to pay taxes or use proprietary assets. Buy more cryptocurrency. The company also offers up to 8 percent interest per year on crypto deposits, which is 0.06 percent of the national average for bank deposits.

How can BlockFi deliver such a high volume? In addition to paying interest on consumer loans, it lends cryptocurrency to institutions such as loyalty investments or Susecanana International Group that use those assets for fast and sometimes lucrative brokerage transactions. And since BlockFi is not a public bank, it does not incur significant costs associated with maintaining the required capital stock and following other banking regulations.

Also, unlike banking, BlockFi does not look at credit results by relying on customers’ basic crypto securities. The company’s executives will democratize financial services, open them up to people who do not have credible cultural identity – like good credit – but with digital assets.

The model worked for BlockFi. It is hiring staff from London to Singapore, and well-known investors – such as Bay Capital, Winklevos Capital and Coinbaz Ventures – have stepped in to support the expansion. The company has raised at least $ 450 million.

But for regulators, BlockFi’s offerings are alarming and confusing – Blockchain initially advised authorities in California to apply for a pawnbroker license. The reason is that customers who apply for a BlockFi loan can provide confidential securities as collateral in such a way that the customer can give them a pay-per-view.

BlockFi’s Mrs. Marquez called the San Francisco Sheriff’s Office to relocate the pawnbroker’s license. “No, the owners’ license is only for physical goods,” she said. And because cryptocurrency is a virtual property, this license does not really apply to you.

Undaunted, she returned to the state bank and persuaded BlockFi to qualify as a lender, even though there was a new one. The company currently has licenses to offer dollar loans and exchanges to more than 450,000 customers in at least 28 states – many outside the United States. In the first three months of this year, the value of Crypto in BlockFi’s interest rates tripled from $ 4.4 billion to $ 14.7 billion, partially offset by Bitcoin and other currencies.

As the company expanded, regulators became increasingly concerned. In July, the New Jersey Attorney General issued a “Stop and Stop” letter stating that the sale of a security product with all related obligations, including liability statements, would be stopped.

“No one gets a license because they work in a fast-growing cryptocurrency market,” said Andrew J. Brooke, acting attorney general.

Echoing the allegations made by Texas officials, state officials did not adequately inform customers of the risks associated with the use of their cryptographic deposits to borrow pools, including “borrowers’ eligibility, type and nature of transactions.” In Alabama, Kentucky and Vermont.

BlockFi CEO Zach Prince said the company complied with the law, but regulators did not fully understand the offerings. “Finally, we see this as an opportunity for BlockFi to describe the environment as our ecosystem,” he said in a statement to customers.

In the DeFi world, when it comes to other emerging crypto finance developers such as Compound, SushiSwap and Aave and PancakeSwap, the control test is even greater.

All are primarily automated markets: crypto-era version of trading platforms that facilitate computer-assisted transactions without human intervention. The idea is to eliminate brokers and mobilize buyers and sellers on the technology behind the cryptocurrency. The sites do not even collect users’ personal information.

The founders of those platforms argue that they are building a “protocol” that will ultimately guide the user community, performing the computer code show efficiently.

Robert Leschner, 37, spent a year in a small roof office rental in San Francisco Missionary District with five of his co-workers experimenting with a computer program that was part of Daffy’s activities.

The compound – backed by well-known Crypto Venture capitals such as Anderson Horotz and Coinbase Ventures – now has more than $ 20 billion in assets. About 300,000 “customers” are each represented by a unique 42-character list of letters and numbers. But Compound does not know their name or even their country of origin.

Mr. Leschner and others who helped set up the compass made it worthwhile, at least on paper, worth tens of millions of dollars.

Mr. Lensner was shocked by the rapid growth. “From time to time, decentralized finance has begun to take its toll on me and everyone,” he said.

Industry executives say there are too many concerns about the safety and stability of digital assets, but federal financial regulators are still working to monitor recent developments.

DeFi protocols are primarily validated on stable coins, but those associated with fixed currencies in US dollars do not guarantee that their value is adequately supported.

Stablecoins’ total market rose from $ 3.3 billion in January 2019 to $ 117 billion in early September. Those controllers are worried.

“These items are considered by consumers as bank deposits,” said the former supervisor of the Federal Reserve Bank in New York. However, in contrast to real deposits, if you are concerned that the FDIC is unsecured and the accountants are concerned that they will not be able to withdraw funds, they may try to start a bank.

One option that should be considered is to prevent banks in the United States from maintaining a safe deposit box, which could effectively shut down the stock market. Another option that some say could weaken the entire crypto ecosystem is the creation of a digital dollar provided by the government.

In July, the federation’s chairman, Paul, said: “You don’t need stable coins. If you have a digital currency, you don’t need currency sources.” “I think it’s one of the strongest arguments he supports.”

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