An interesting ruling has been made by the Australian federal court regarding crypto-yield products. The court has established a distinction between products that promise a managed yield and decentralized finance (DeFi) products. According to the ruling, products that offer a managed yield will require a financial services license, while pass-through DeFi products may not.
The ruling came in response to a case against Block Earner, a company that offered a product called “Earner” in 2022. This product provided yield for loans denominated in various cryptocurrencies, including USD Coin, Bitcoin, Ether, and PAX Gold. The court determined that Block Earner needed to obtain an Australian Financial Services License for this product.
However, the court did not require a license for Block Earner’s DeFi “Access” product. The judge explained that this product did not operate as a managed investment scheme and therefore did not fall under the same regulatory requirements.
Block Earner expressed its satisfaction with the court’s decision, stating that it provides guidance to the crypto industry in Australia regarding the applicability of financial services laws to crypto-related products and services.
The case was brought by the Australian Securities and Investment Commission (ASIC), which claimed that both Block Earner’s Access and Earner products violated corporation laws. In an interview, a digital asset lawyer explained that the Access product is merely a pass-through to DeFi, while the Earner product involved a representation that users’ crypto would be used to generate a return.
The key factor in determining the regulatory requirements for these products lies in how they are marketed. Block Earner confirmed that it terminated the Earner product before the proceedings began and that the court’s findings do not affect its current products.
The dismissal of ASIC’s case against Access is seen as a positive development for the coexistence of DeFi and Australia’s regulatory frameworks. However, experts believe that if the proposed legislation for the crypto sector is passed, Block Earner may be subject to licensing conditions.
ASIC will now seek monetary penalties from the court, and a case management hearing has been scheduled for March 1, 2024.
The securities regulator emphasized the importance of firms offering cryptocurrency products carefully considering whether their offerings fall under the definition of financial products and seeking licensing if necessary.
Overall, this ruling has significant implications for the crypto industry in Australia and provides clarity on the regulatory requirements for crypto-yield products.