Crypto products are mimicking bank accounts

What we’ve noticed: Crypto companies are offering high-yield products that behave like depository bank accounts.

  • Blocknom, which said on Friday it bagged $500,000 in a pre-seed round, plans to offer a depository crypto product in Southeast Asia, per TechCrunch. The fintech is accepting stablecoin deposits in return for high-yield annualized interest of up to 13%.
  • In the US, Celsius advertises accounts that earn interest of up to 17%, and offers up to 14.5%.
  • UK-based AQRU promotes earning up to 12% interest.
  • Binance, which was founded in China but doesn’t yet have headquarters, offers two crypto savings products. One allows for withdrawals without time constraints with interest of up to 20%, and the other has lock-in periods and up to 25% annualized interest.

Stateside scrutiny: US regulators haven’t been too keen on these account-style products, which lack FDIC or NCUA protection for savers.

  • BlockFi agreed to a $100 million settlement with the SEC last month because it didn’t register its accounts as lending products. It stopped offering the accounts to US customers but aims to return to the space after submitting a registration statement to the SEC.
  • The SEC is also investigating Celsius, Gemini, and Voyager, regarding their depository products, per January 2022 report from Bloomberg. As with BlockFi, the SEC may determine these offerings need to be registered as securities.
  • And Coinbase dropped its plans for US crypto savings accounts in September 2021 after a critical SEC response, per CNBC.

The big takeaway: While high yields may draw customers to crypto-based accounts, regulators need to ensure that the public doesn’t view them as having comparable risk to insured bank accounts.

These accounts have no deposit protection, so interest-bearing products should be treated like other assets in the broader crypto market.

The SEC outlines that depositors’ risks include:

  • Companies holding the assets could fail.
  • Deposits could be subject to fraud and hacking.
  • Particular cryptos can lose tradeability if their markets disappear.
  • Crypto markets can be Illiquid and volatile.

The SEC asserts that it has broad authority over crypto, but Congress could step in and enact legislation that addresses interest-bearing crypto accounts. And other countries could also take action should these accounts gain traction, which would complicate growth plans for companies looking to play in the space.